<PAGE>
<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 16, 1996.
REGISTRATION NO. 333-5543
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
SLEEPY'S, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C> <C>
NEW YORK 5712 11-2125264
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
175 CENTRAL AVENUE SOUTH
BETHPAGE, NY 11714
(516) 844-8800
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
</TABLE>
------------------------
HARRY ACKER, CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
SLEEPY'S, INC.
175 CENTRAL AVENUE SOUTH
BETHPAGE, NY 11714
(516) 844-8800
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPIES OF COMMUNICATIONS TO:
<TABLE>
<S> <C>
GARY J. SIMON, ESQ. MITCHELL S. FISHMAN, ESQ.
PARKER CHAPIN FLATTAU & KLIMPL, LLP PAUL, WEISS, RIFKIND, WHARTON & GARRISON
1211 AVENUE OF THE AMERICAS 1285 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10036-8701 NEW YORK, NEW YORK 10019-6064
(212) 704-6000 (212) 373-3000
</TABLE>
------------------------
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable
after this registration statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
________________________________________________________________________________
<PAGE>
<PAGE>
SLEEPY'S, INC.
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
REFERENCING ITEMS IN PART I OF FORM S-1 TO THE PROSPECTUS
<TABLE>
<CAPTION>
ITEM NUMBER AND CAPTION PROSPECTUS CAPTION OF PAGE
--------------------------------------------------------------- ------------------------------------------
<C> <S> <C>
1. Forepart of the Registration Statement and Outside Front Cover
Page of Prospectus........................................... Facing Page of Registration Statement;
Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of Prospectus........ Inside Front Cover Page of Prospectus;
Outside Back Cover Page of Prospectus
3. Summary Information, Risk Factors and Ratio of Earnings to
Fixed Charges................................................ Prospectus Summary; Risk Factors
4. Use of Proceeds................................................ Prospectus Summary; Use of Proceeds
5. Determination of Offering Price................................ Outside Front Cover Page of Prospectus;
Risk Factors; Underwriting
6. Dilution....................................................... Prospectus Summary; Risk Factors; Dilution
7. Selling Security Holders....................................... Not Applicable
8. Plan of Distribution........................................... Outside Front Cover Page of Prospectus;
Underwriting
9. Description of Securities to be Registered..................... Outside Front Cover Page of Prospectus;
Prospectus Summary; Description of
Capital Stock
10. Interests of Named Experts and Counsel......................... Legal Matters; Experts
11. Information with Respect to the Registrant..................... Outside Front Cover Page of Prospectus;
Inside Front Cover Page of Prospectus;
Prospectus Summary; Risk Factors; Use of
Proceeds; Dividend Policy;
Capitalization; Selected Financial Data;
Management's Discussion and Analysis of
Financial Condition and Results of
Operations; Business; Management;
Principal Shareholders; Description of
Capital Stock; Shares Eligible for
Future Sale; Financial Statements
12. Disclosure of Commission Position on Indemnification for
Securities Act Liabilities................................... Part II
</TABLE>
<PAGE>
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT
BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION
STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO
SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF
THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE
WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE
SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION -- DATED JULY 16, 1996
PROSPECTUS
1,375,000 SHARES
[LOGO]
COMMON STOCK
The 1,375,000 shares of common stock (the 'Common Stock') being offered
hereby are being sold by Sleepy's, Inc., a New York corporation (the 'Company').
Prior to this offering, there has been no public market for the Common Stock. It
presently is estimated that the initial public offering price will be between
$10.00 and $12.00 per share. See 'Underwriting' for a discussion of the factors
considered in determining the initial public offering price. Upon completion of
this offering, Harry Acker, the Chairman of the Board and Chief Executive
Officer of the Company, will beneficially own approximately 67.9% of the
outstanding Common Stock.
The Common Stock has been approved for quotation on the Nasdaq National
Market, subject to official notice of issuance, under the symbol 'SLPY.'
------------------------
SEE 'RISK FACTORS' BEGINNING ON PAGE 8 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING DISCOUNTS PROCEEDS TO
PUBLIC AND COMMISSIONS(1)(2) COMPANY(3)
<S> <C> <C> <C>
Per Share................................. $ $ $
Total(4).................................. $ $ $
</TABLE>
(1) Excludes the value of warrants to purchase up to 137,500 shares of Common
Stock to be issued to the Representative of the Underwriters as additional
compensation.
(2) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933. See
'Underwriting.'
(3) Before deducting expenses estimated at $525,000, which will be paid by the
Company.
(4) The Company has granted the Underwriters a 45-day option to purchase up to
206,250 additional shares solely to cover over-allotments, if any. If such
option is exercised in full, the total Price to Public, Underwriting
Discounts and Commissions and Proceeds to the Company will be $ ,
$ and $ , respectively. See 'Underwriting.'
------------------------
This Common Stock is offered by the Underwriters, subject to prior sale,
when, as and if delivered to and accepted by the Underwriters, and subject to
the right of the Underwriters to reject any order in whole or in part and
certain other conditions. It is expected that delivery of certificates for the
shares of Common Stock will be made at the offices of Bear, Stearns Securities
Corp., 1 Metrotech Center No., Brooklyn, New York, 11201, as agent for Gerard
Klauer Mattison & Co., LLC, on or about , 1996.
GERARD KLAUER MATTISON & CO., LLC
------------------------
THE DATE OF THIS PROSPECTUS IS , 1996
<PAGE>
<PAGE>
[PHOTO OF OUTSIDE OF STAND-ALONE SLEEPY'S STORE]
[PHOTO OF OUTSIDE OF SHOPPING CENTER KLEINSLEEP STORE]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, THE OVER-THE-COUNTER
MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY
TIME.
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
NEW YORK, NY LONG ISLAND, NY
<S> <C> <C> <C>
Sleepy's Store Locations: Kleinsleep Store Locations: Sleepy's Store Locations:
Bronx (4) Brooklyn Bay Shore Massapequa
Brooklyn (6) Manhattan (3) Bohemia Merrick
Manhattan (5) Ozone Park Bridgehampton New Hyde Park
Queens (7) Rego Park Carle Place (2) Oceanside
Staten Island (3) NEW JERSEY Commack Patchogue
WESTCHESTER & Sleepy's Store Locations: Farmingdale Plainedge
ROCKLAND CO., NY East Hanover Hicksville Riverhead
Sleepy's Store Locations: Edison Huntington Rocky Point
Mamaroneck Hasbrouck Heights Lawrence (2) Selden
Mount Kisco Hoboken Levittown Smithtown
Nanuet Little Falls Lynbrook West Babylon
White Plains Paramus Manhasset West Hempstead
Yonkers Secaucus Kleinsleep Store Locations:
Yorktown Heights Somerville Carle Place Lake Grove
Kleinsleep Store Springfield Commack Manhasset
Locations: Watchung Garden City Sayville
Nanuet West New York Hicksville Southampton
Yonkers Kleinsleep Store Locations: Huntington Valley Stream
FAIRFIELD CO., CT Paramus
Kleinsleep Store
Location:
Westport
TRI-STATE METROPOLITAN AREA
1-800 Sleepy's Telemarketing:
Entire Tri-State Metropolitan Area
</TABLE>
[MAP OF STORE LOCATIONS]
[SLEEPY'S LOGO]
[KLEINSLEEP LOGO]
<PAGE>
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements (including the notes thereto) appearing
elsewhere in this Prospectus. Unless otherwise indicated, all information in
this Prospectus assumes no exercise of the Underwriter's over-allotment option
and reflects (i) the 29,000-to-one stock split of the Common Stock effected in
June 1996, and (ii) the Reorganization of the Company, as described below,
which will be effected immediately prior to the consummation of this offering.
Prospective investors should carefully consider the information set forth
under the caption 'Risk Factors.' Unless the context otherwise requires, the
'Company' or 'Sleepy's' refers to Sleepy's, Inc. and its subsidiaries as
reorganized prior to the consummation of this offering. See 'Reorganization of
the Company and Change in Tax Status.' References in this Prospectus to a
fiscal year of the Company refer to the fiscal year of the Company ended or
ending on the Saturday closest to December 31 of that fiscal year.
THE COMPANY
The Company is one of the leading specialty retailers of bedding in the
New York, New Jersey and Connecticut tri-state metropolitan area (the
'Tri-state area'), where it currently operates 88 stores. Based on the number
of its stores, the Company believes that it also is one of the largest
specialty retailers of bedding in the United States. The Company's sales
operations are conducted through three formats: (i) 68 Sleepy'sTM stores,
which address a broad customer base and offer an extensive selection of
bedding merchandise in a wide range of prices; (ii) 20 KleinsleepTM stores,
which generally are located in more affluent areas and offer a greater mix of
higher-priced bedding merchandise; and (iii) the Company's 1-800-SLEEPY'STM
telemarketing operations, which commenced in 1995 and offer only products of
the nation's three largest bedding manufacturers to the most
convenience-oriented and cost-conscious consumers.
The Company has experienced significant growth in revenues and earnings
over the past two years. Net sales increased from $49,644,000 in fiscal 1994
to $59,763,000 in fiscal 1995 and from $13,115,000 in the first quarter of
fiscal 1995 to $16,045,000 in the first quarter of fiscal 1996. Net income
also increased, from $676,000 in fiscal 1994 to $3,569,000 in fiscal 1995 and
from $(46,000) in the first quarter of fiscal 1995 to $419,000 in the first
quarter of fiscal 1996. The Company attributes these increases primarily to
the growth during fiscal 1995 in the number of its stores, from 75 to 87, the
leveraging of fixed expenses over the additional stores and the commencement
of telemarketing operations.
The Company's stores offer a wide variety of bedding merchandise. Sales
of mattresses and box springs ('bed sets') currently account for approximately
84% of the Company's revenues, although the Company's stores offer a variety
of other bedding products, including brass beds, iron beds, headboards,
footboards, high risers, day beds, bunk beds, futons, motorized beds, bed
frames and related items. The Company offers only brand name products from all
of the major mattress manufacturers in the United States, including Simmons,
Sealy, Serta, Spring Air, Stearns & Foster, Kingsdown, Aireloom, Eclipse and
Eastern. Each store displays approximately 50 varieties of bed sets. In
addition to its broad selection of merchandise, the Company offers a wide
choice of bed sets and other bedding products through manufacturers' catalogs.
OPERATING STRATEGY
The Company believes that its current operating strategy offers
competitive advantages, including the following (for more information
concerning the Company's operating strategy, see 'Business -- Operating
Strategy'):
Broad Market Coverage. By marketing and selling its products through its
three different formats, the Company covers virtually all consumers
throughout the Tri-state area.
Competitive Pricing. In order to achieve competitive pricing, the
Company maintains relatively low costs of occupancy, labor, distribution
of merchandise and other aspects of its operations.
3
<PAGE>
<PAGE>
Aggressive Marketing. The Company effectively uses print, radio,
television and other advertising to promote each of its three sales
formats and has achieved broad name recognition in the Tri-state area.
Centralized Distribution Facility. The Company realizes economies of
scale by servicing stores from its leased centralized distribution
facility/headquarters. The Company expects that its proposed expansion
strategy will permit further leveraging of the centralized facility's
costs over the anticipated increase in sales volume from the addition of
new stores and the expansion of its telemarketing operations.
Ongoing Review of Store Performance and Location. The Company
continually reviews the profitability trends and prospects of its stores
and evaluates whether underperforming stores should be closed, relocated
to more desirable locations or converted to the Company's other store
format.
GROWTH STRATEGY
The Company's goal is to become the dominant retailer of bedding in the
Tri-state area. The Company intends to increase its market penetration in this
area and to expand its operations into contiguous geographic areas. The
Company intends to open or acquire more than 15 stores during the 12 months
following the date of this Prospectus. The Company believes that by opening
these new stores it will realize greater economies of scale in distribution,
advertising and management. The principal elements of the Company's growth
strategy include the following (for more information concerning the Company's
growth strategy, see 'Business -- Growth Strategy'):
Store Expansion. The Company intends to pursue an aggressive expansion
strategy, primarily through new store openings and acquisitions in the
Tri-state area, as well as in markets contiguous to that area.
Expanded Telemarketing. The Company intends to expand its telemarketing
operations. The expansion of these operations, which are conducted from
the Company's main facility, primarily involves the addition of
personnel and generally does not require significant capital
expenditures.
Increased Advertising. The Company intends to significantly increase its
advertising efforts. As a result of the extensive penetration in the
Tri-state area of the advertising media used by the Company, the Company
believes that its advertising efforts will be effective in reaching
virtually all consumers throughout its market.
Warehouse Expansion. Currently, the Company's centralized distribution
facility/headquarters is being expanded by the landlord/owner in
accordance with the Company's requirements and specifications. The
Company believes that these improvements will enable the Company to
maintain a larger inventory of products and continue to fulfill its
customers' needs as the Company increases its market share.
4
<PAGE>
<PAGE>
<TABLE>
<S> <C>
THE OFFERING
Common Stock Offered by the Company................ 1,375,000 shares
Common Stock Outstanding after the Offering........ 4,275,000 shares(1)
Use of Proceeds.................................... The net proceeds of this offering will be used to finance
the Company's planned expansion, through the opening and
acquisition of new stores and increased warehouse
inventory relating thereto; to make a distribution to the
principal shareholder of the Company in connection with
the change in the Company's tax status; to repay
outstanding indebtedness to a corporation controlled by
the principal shareholder of the Company and to a bank,
in each case incurred in order to provide working capital
to the Company; to repay outstanding indebtedness assumed
by the Company in the Reorganization; and for general
working capital purposes and potential acquisitions. See
'Reorganization of the Company and Change in Tax Status'
and 'Use of Proceeds.'
Risk Factors....................................... The purchase of the Common Stock offered hereby involves
risks, including risks relating to the Company's
expansion plans, dependence on certain suppliers,
competition and proposed warehouse expansion project. See
'Risk Factors.'
Nasdaq National Market Symbol...................... SLPY
</TABLE>
--------------
(1)Does not include up to 400,000 shares of Common Stock reserved for issuance
pursuant to the Company's 1996 Stock Option Plan. On or prior to the date
of this Prospectus, the Company will have granted options to purchase
232,000 shares of Common Stock under the 1996 Stock Option Plan at the
initial public offering price, none of which options has been exercised.
See 'Risk Factors -- Shares Eligible for Future Sale.'
5
<PAGE>
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT OPERATING AND PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED(1) THREE MONTHS ENDED
------------------------------------------------------------------------ -------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
DECEMBER 28, JANUARY 2, JANUARY 1, DECEMBER 31, DECEMBER 30, APRIL 1, MARCH 30,
1991 1993 1994 1994 1995 1995 1996
------------ ------------ ------------ ------------ ------------ ----------- -----------
INCOME STATEMENT DATA:
Net sales......... $ 29,620 $ 35,305 $ 41,402 $ 49,644 $ 59,763 $13,115 $16,045
Gross profit...... 15,290 17,271 20,374 23,226 29,069 6,269 7,920
Income from
operations...... 1,229 882 1,217 1,131 3,804 25 713
Pro forma
provision for
income
taxes(3)........ 1,328 143
Pro forma net
income(2)(3).... 1,991 214
Pro forma net
income per
share(3)(4)..... $ 0.69 $ 0.07
Weighted average
common shares
outstanding(3)(4).. 2,900 2,900
Supplemental pro
forma net income
per share(4).... $ 0.61 $ 0.07
OPERATING DATA
(UNAUDITED):
Stores open at end
of period....... 56 63 66 75 87 78 88
Inventory
turnover(5)..... 11.5x 8.3x 10.4x 10.7x 10.9x 9.3x 13.5x
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 30, 1996
-----------------------------------------
PRO PRO FORMA
ACTUAL FORMA(6) AS ADJUSTED(6)(7)
------- --------- -----------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital...................................................... $(1,980) $(5,273) $11,486
Total assets......................................................... 17,278 19,261 26,591
Long-term debt and obligations under capital lease................... 2,686 5,747 5,747
Shareholder's equity................................................. 4,493 122 13,588
</TABLE>
- ------------
(1)The Company's fiscal year-end is the Saturday closest to December 31 in
each year. References to 'fiscal 1991,' 'fiscal 1992,' 'fiscal 1993,'
'fiscal 1994' and 'fiscal 1995' are to the fiscal years ended December 28,
1991, January 2, 1993, January 1, 1994, December 31, 1994 and December 30,
1995, respectively.
(2)For fiscal 1995 and the three months ended March 30, 1996, pro forma net
income reflects a pro forma adjustment in accordance with the increase in
the annual salary of the Company's Chairman of the Board and Chief
Executive Officer to $400,000 from an imputed $150,000. In addition,
commencing May 1, 1996, the Company entered into an employment agreement
with the new President of the Company providing for a salary of $200,000
during the first year thereof, which amount is not reflected in pro forma
net income. See Notes to Consolidated Financial Statements and
'Management.'
(3)Prior to the date of this Prospectus, the Company reported as an S
corporation for federal and certain state income tax purposes. Accordingly,
the Company was not subject to federal and certain state income taxes
during that period. The pro forma income taxes reflect the taxes which
would have been accrued if the Company had elected to report as a C
corporation. See 'Reorganization of the Company and Change in Tax Status.'
(4)Supplemental pro forma net income per share is based on the weighted
average number of shares of Common Stock used in the calculation of pro
forma net income per share plus the estimated
(footnotes continued on next page)
6
<PAGE>
<PAGE>
(footnotes continued from previous page)
number of shares that would need to be sold by the Company in order to fund
the cash distribution to the Company's principal shareholder of
approximately $1,900,000 (representing approximately $3,600,000 of
undistributed S corporation taxable income less advances of approximately
$1,700,000 at March 30, 1996), the repayment of a $1,000,000 loan payable
to an affiliate, $750,000 of bank debt and $540,000 of vendor loans to be
assumed in the Reorganization, all of which are to be paid out of the net
proceeds of this offering. See 'Use of Proceeds' and 'Reorganization of the
Company and Change in Tax Status.'
(5)Inventory turnover is determined by dividing cost of sales, which is
included in the cost of sales, buying and occupancy, by the annual average
inventory, which represents the average inventory at the beginning and end
of each fiscal period.
(6)Includes pro forma adjustments to reflect (i) the Reorganization of the
Company, including the cash distribution to the Company's principal
shareholder of approximately $1,900,000 (representing approximately
$3,600,000 of undistributed S corporation taxable income less advances of
approximately $1,700,000 at March 30, 1996), the Company's assumption of
loans payable to vendors of $540,000, and the recording of a $428,000
deferred tax asset and (ii) $5,077,000 and $5,786,000, respectively, of
property and obligations under a capital lease and $613,000 of capital
distributions resulting from the recording of the new lease agreement for
the Company's centralized distribution facility/headquarters as a capital
lease. See 'Reorganization of the Company and Change in Tax Status' and
'Use of Proceeds.'
(7)Adjusted to reflect the sale of shares of Common Stock offered hereby and
the application of net proceeds therefrom. See 'Use of Proceeds.'
7
<PAGE>
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered carefully by prospective investors in evaluating an
investment in the shares of Common Stock offered by this Prospectus.
EXPANSION
The Company's planned growth depends, in part, on its ability to open new
stores in existing markets, successfully relocate stores which have been
underperforming and expand into new markets. There can be no assurance, however,
that the Company will be able to identify and obtain favorable store sites,
arrange favorable leases for new stores, open new stores in a timely manner or
hire, train and integrate qualified sales associates in those new stores. The
failure by the Company to obtain new leases, open new stores or retain qualified
sales associates could have a material adverse impact on the Company's proposed
growth and future results of operations. Similarly, there can be no assurances
that the Company will be successful in expanding into existing or contiguous
markets. See 'Management's Discussion and Analysis of Financial Condition and
Results of Operations' and 'Business.'
DEPENDENCE ON CERTAIN SUPPLIERS
The Company purchases merchandise from approximately 20 vendors. During
fiscal 1995, the Company's five largest suppliers accounted for approximately
21.4%, 15.7%, 14.3%, 9.6% and 9.4%, respectively, of the Company's total
merchandise purchased. The Company typically does not maintain long-term
purchase contracts with suppliers and operates principally on a purchase order
basis. There can be no assurance that the loss of any one or more of its
suppliers would not have a material adverse effect on the Company or that
suppliers could not increase prices such as to have an adverse effect on the
Company's results of operations.
COMPETITION
The retail bedding industry in the United States in general and in the
Company's existing geographic markets in particular is highly competitive and
highly fragmented. The Company's store competitors include a variety of national
and regional chains of retail furniture stores carrying bedding (such as Seaman
Furniture Company, Inc. and Levitz Furniture, Inc.), department store chains
with bedding departments (such as Sears Roebuck and Co. and the Macy's and
Bloomingdales stores of Federated Department Stores, Inc.), regional and local
independent furniture stores carrying bedding and other regional and local
specialty retailers of bedding. The Company's stores also compete with at least
one national and one regional specialty retail bedding chain. In the past, the
Company faced periods of heightened competition that materially affected its
results of operations. In addition, the Company competes with several regional
telemarketers of bedding. Certain of the Company's competitors have
substantially greater financial and other resources than the Company.
Accordingly, the Company may face periods of intense competition in the future
that could have a material adverse effect on the Company's planned growth and
future results of operations. See 'Business -- Competition.'
COMPLETION OF WAREHOUSE EXPANSION PROJECT
The success of the Company's proposed store expansion strategy depends to a
significant extent on the completion of the planned 79,000 square foot expansion
of its centralized distribution facility/ headquarters in Bethpage, New York.
This facility is currently leased on a triple net lease basis from BDC Realty
Corp., a corporation owned by David Acker and A. J. Acker, both of whom are
executive officers of the Company and who are, respectively, the son and wife of
Harry Acker, the Company's Chairman of the Board, Chief Executive Officer and
principal shareholder. The proposed expansion project is expected to be
substantially completed by the end of the Company's current fiscal year in
accordance with the Company's requirements and specifications. The expanded
facility, when completed, is expected to accommodate the Company's warehouse
inventory needs for both its recent growth and planned expansion. The failure of
BDC Realty Corp. to complete the construction project on time or in accordance
with the Company's specifications could have a material adverse effect on the
Company's proposed growth and future results of operations. There can be no
assurance that BDC
8
<PAGE>
<PAGE>
Realty Corp. will have available to it sufficient funds in order to complete the
warehouse expansion project. In the event that BDC Realty Corp. fails to have
funds available to it sufficient to complete the proposed warehouse expansion,
the Company may elect to apply its payments under the lease with BDC Realty
Corp. to complete the warehouse expansion and, to assist in completion of the
warehouse expansion on schedule, the Company under certain circumstances may
elect to assume from BDC Realty Corp. management of the warehouse expansion
project. The Company has no experience in the management of construction
projects and there can be no assurance that it would be able to complete the
proposed expansion at a reasonable cost and without significant delays in such
event. See 'Certain Transactions.'
REQUIRED LESSOR CONSENTS
Leases for certain of the Company's stores that, prior to the
Reorganization, are leased by separate corporations (the 'Lessee Corporations')
require or may require the consent of the lessors thereunder to the contribution
of the stock of the relevant Lessee Corporation to the Company in the
Reorganization. If consents of the relevant lessors are not obtained, these
corporations will not be included in the Reorganization as of the date of this
Prospectus. Instead, the Company will seek to obtain such consents and
contribution of the stock of such Lessee Corporations to the Company after the
closing. If such consents cannot be obtained, the Company will seek to develop
alternative approaches so that, to the maximum extent possible, the Company will
receive the benefits of each such lease. Although failure by the Company to
acquire the stock of certain Lessee Corporations may, in the aggregate, have
a material adverse effect on the Company, the Company believes that the
Contributed Corporations will give the Company rights under leases sufficient
for the Company to conduct its business in all material respects as disclosed
in this Prospectus. See 'Business -- Properties.'
QUARTERLY FLUCTUATIONS IN EARNINGS
The Company historically has experienced and expects to continue to
experience quarterly fluctuations in its net sales and net income. The Company
generally has experienced more sales and a greater portion of income during the
second and third quarters of the year. The Company expects this trend to
continue for the foreseeable future. See 'Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Quarterly Fluctuations and
Seasonality.' In addition, the Company's quarterly results of operations may
fluctuate as a result of a variety of factors, including the weather
(particularly during the first quarter of the year), the timing of new store
openings and the net sales contributed by the new stores. Because of
fluctuations in net sales and net income, the results of operations for any
quarter are not necessarily indicative of the results that may be achieved for a
full fiscal year or for any future quarter. See 'Business.'
DEPENDENCE UPON KEY PERSONNEL; MANAGEMENT OF GROWTH
The success of the Company's operations during the foreseeable future will
depend largely upon the continued services of Harry Acker, Chairman of the Board
and Chief Executive Officer, and the loss of his services could have a material
adverse impact on the Company. Mr. Acker has entered into an employment
agreement with the Company which contains a non-competition covenant that
extends for a period of two years following termination of employment. In
addition, the Company has obtained $1,000,000 of key man life insurance on the
life of Mr. Acker. See 'Management -- Employment Agreements.'
The Company's success also depends in part on its ability to manage,
attract and retain qualified sales personnel. Competition for such personnel is
intense. There can be no assurance that the Company will be successful in
attracting and retaining the personnel it requires to conduct its operations
successfully. The Company's results of operations could be adversely affected if
the Company were unable to attract, manage and retain these personnel or if
revenue fails to increase at a rate sufficient to absorb the resulting increase
in expenses.
CONTROL BY PRINCIPAL SHAREHOLDER
Upon completion of this offering, Harry Acker will beneficially own
approximately 67.9% of the outstanding Common Stock. Accordingly, Mr. Acker,
individually, will have the ability to control the
9
<PAGE>
<PAGE>
election of all of the members of the Company's Board of Directors and the
outcome of corporate actions requiring majority shareholder approval. Even as to
corporate actions in which super-majority approval may be required, such as
certain fundamental corporate transactions, Mr. Acker will effectively control
the outcome of such actions.
GOVERNMENT REGULATION
The Company's operations are subject to state and local consumer protection
and other regulation relating to the bedding industry. These regulations vary
among the states constituting the Tri-state area. The regulations generally
impose requirements as to the proper labeling of bedding merchandise,
restrictions regarding the identification of merchandise as 'new' or otherwise,
controls as to hygiene and other aspects of product handling and sale and
penalties for violations. Although the Company believes that it is in
substantial compliance with these regulations and currently is implementing a
variety of measures to promote continuing compliance, there can be no assurance
that the Company will not be required in the future to incur expense and/or
modify its operations in order to ensure such compliance.
The Company also believes that its operations currently comply in all
material respects with applicable Federal, state and local environmental laws
and regulations. Although the Company does not anticipate any significant
expenditures in order to comply with such laws and regulations, there can be no
assurance that such expenditures will not be required in the future, which
expenditures could have a material adverse effect on the Company.
POTENTIAL ANTI-TAKEOVER EFFECTS OF PREFERRED STOCK
The Company's Certificate of Incorporation authorizes the issuance of
5,000,000 shares of 'blank check' preferred stock with such designations, rights
and preferences as may be determined from time to time by the Board of
Directors. Accordingly, the Board of Directors is empowered, without shareholder
approval (but subject to applicable government regulatory restrictions), to
issue preferred stock with dividend, liquidation, conversion, voting or other
rights which could adversely affect the voting power or other rights of the
holders of the Company's Common Stock. In the event of issuance, the preferred
stock could be utilized, under certain circumstances, as a method of
discouraging, delaying or preventing a change in control of the Company.
Although the Company has no present intention to issue any shares of its
preferred stock, there can be no assurance that the Company will not do so in
the future. In certain circumstances, the existence of provisions that inhibit
or discourage take-over transactions could reduce the market value of the Common
Stock. See 'Description of Capital Stock -- Preferred Stock.'
ABSENCE OF PRIOR TRADING MARKET; POTENTIAL VOLATILITY OF STOCK PRICE
Prior to this offering, there has been no public market for the Common
Stock and, although the Common Stock has been approved for quotation on the
Nasdaq National Market, subject to official notice of issuance, there can be no
assurance that following this offering an actual trading market will develop or
be maintained. The initial public offering price of the Common Stock offered
hereby has been determined by negotiations between the Company and the
representative of the Underwriters and may not be indicative of the market price
of the Common Stock in the future. For a description of the factors considered
in determining the initial public offering price, see 'Underwriting.' The market
price of the shares of Common Stock may be highly volatile. Factors such as
fluctuation in the Company's operating results, the introduction of new
commercial products or services by the Company or its competitors and general
market conditions may have a significant effect on the market price of the
Common Stock. Under Nasdaq rules, in order to avoid delisting once approved, the
Company is required to establish an independent audit committee within 90 days
following the date of this Prospectus. See 'Management -- Executive Officers and
Directors.'
DILUTION TO PURCHASERS OF COMMON STOCK
The initial public offering price is substantially higher than the book
value per share of Common Stock. Investors purchasing shares of Common Stock in
this offering therefore will incur immediate substantial dilution in net
tangible book value of $8.02 per share (assuming an initial public offering
10
<PAGE>
<PAGE>
price of $11.00 per share, representing the midpoint of the range set forth on
the cover page of this Prospectus). See 'Dilution.'
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of substantial amounts of the Company's Common Stock could
adversely affect the market price of the Common Stock. Upon completion of this
offering, the 1,375,000 shares offered hereby will be freely tradeable by
persons other than 'affiliates' of the Company without restriction. All of the
remaining 2,900,000 shares are subject to 'lock-up' agreements under which the
holders of such shares have agreed not to offer, sell, pledge, grant an option
for the sale of, or otherwise dispose of any shares of Common Stock without the
prior written consent of the Representative of the Underwriters for a period of
180 days after the date of this Prospectus. Under current interpretations, all
such shares of Common Stock will be eligible for resale after the expiration of
the lock-up period pursuant to Rule 144 under the Securities Act of 1933 (the
'Act'). Following this offering, Harry Acker will hold a majority of the
outstanding Common Stock and a decision by Mr. Acker to sell his shares could
adversely affect the market price of the Common Stock. The Company also may
grant stock options to purchase in the aggregate up to 400,000 shares of Common
Stock pursuant to its 1996 Stock Option Plan. On or prior to the date of this
Prospectus, the Company will have granted options to purchase 232,000 shares of
Common Stock under the 1996 Stock Option Plan at the initial public offering
price. Sales of substantial amounts of the Common Stock in the public market,
whether by purchasers in the offering or by other shareholders of the Company,
or the perception that such sales could occur, may adversely affect the market
price of the Common Stock. See 'Shares Eligible for Future Sale' and
'Underwriting.'
NO DIVIDENDS
Prior to this offering, the Company made distributions to the Company's
principal shareholder, including amounts sufficient to reimburse him for federal
and certain state income tax liabilities arising from the Company's status as an
S corporation. Except for the payment of approximately $1,900,000 (consisting of
approximately $3,600,000 of retained earnings net of approximately $1,700,000 of
advances) with respect to the taxable income of the Company through the date of
this Prospectus, the Company does not intend to pay any dividends to its
shareholders in the foreseeable future. The Company currently intends to
reinvest earnings, if any, in the development and expansion of its business. See
'Reorganization of the Company and Change in Tax Status,' 'Use of Proceeds,'
'Dividend Policy' and 'Management's Discussion and Analysis of Financial
Condition and Results of Operations.'
11
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<PAGE>
THE COMPANY
The Company is one of the leading specialty retailers of bedding in the New
York, New Jersey and Connecticut tri-state metropolitan area (the 'Tri-state
area'), where it currently operates 88 stores. Based on the number of its
stores, the Company believes that it also is one of the largest specialty
retailers of bedding in the United States. The Company's sales operations are
conducted through three formats: (i) 68 Sleepy'sTM stores, which address a broad
customer base and offer an extensive selection of bedding merchandise in a wide
range of prices; (ii) 20 KleinsleepTM stores, which generally are located in
more affluent areas and offer a greater mix of higher-priced bedding
merchandise; and (iii) the Company's 1-800-SLEEPY'STM telemarketing operations,
which commenced in 1995 and offer only products of the nation's three largest
bedding manufacturers to the most convenience-oriented and cost-conscious
consumers.
The Company was founded in 1957 by Harry Acker, its current Chairman of the
Board and Chief Executive Officer, when he opened his first specialty retail
bedding store in Brooklyn, New York. In 1993, in addition to operating under the
Sleepy's name, the Company commenced operating stores under the Kleinsleep name
and, in 1995, the Company initiated its telemarketing operations. The number of
stores operated by the Company grew to approximately 46 in fiscal 1990, 66 in
fiscal 1993 and 88 as of the date of this Prospectus. The Company's stores
average approximately 3,500 square feet in size, generally are positioned in
high-traffic and high-visibility locations and follow relatively low-cost
opening and operating procedures.
The Company was incorporated in New York in 1957. The address of the
Company's principal executive offices is 175 Central Avenue South, Bethpage, New
York 11714, and its telephone number is (516) 844-8800.
REORGANIZATION OF THE COMPANY AND CHANGE IN TAX STATUS
During 1996, the Company changed its name from Bedding Discount Center Inc.
to Sleepy's, Inc. In June 1996, the Company effected a 29,000-to-one stock split
which increased the issued and outstanding shares of the Company from 100 to
2,900,000 shares. Prior to the consummation of this offering, all of the issued
and outstanding shares of capital stock of each of KS Acquisition Corp., a New
York corporation ('KSAC'), Sleepy's International, Inc., a Florida corporation
('SII'), and 1-800-Sleepy's, Inc., a New York corporation ('1-800'), will be
contributed to the Company by Harry Acker and three trusts formed by Mr. Acker
for the benefit of his children, of each of which trusts Mr. Acker is the sole
trustee. Mr. Acker and the trusts collectively own all such shares to be
contributed. In connection with the contribution of the shares of capital stock
of KSAC, the Company will assume two loans in the aggregate amount of
approximately $540,000 payable by Mr. Acker to vendors. In addition, prior to
the effectiveness of this offering, all of the issued and outstanding shares of
capital stock of certain corporations, which collectively are the lessees of the
sites of all of the Company's stores, will be contributed to the Company by Mr.
Acker and the trusts, which collectively own all such shares to be contributed
(which corporations, with KSAC, SII and 1-800, are collectively referred to
herein as the 'Contributed Corporations').
Prior to the effectiveness of this offering, the Company, including each of
the Contributed Corporations, has been taxed as an S corporation under the
Internal Revenue Code of 1986, as amended. As a result, the Company was not
subject to federal and certain state income tax purposes during that period. Mr.
Acker, as the principal shareholder of the Company, has had and will continue to
have obligations for federal and certain state income taxes on the Company's
taxable income through the date of this Prospectus. The S corporation election
of the Company, including the Contributed Corporations, will terminate on the
date of this Prospectus. In connection with the foregoing, on the closing date
of this offering Mr. Acker will receive distributions with respect to the
Company's taxable income through the date of this Prospectus in the aggregate
amount of approximately $1,900,000 (consisting of approximately $3,600,000 of
retained earnings net of approximately $1,700,000 of advances). The amount of
the distribution to Mr. Acker on the closing date of this offering will be
calculated based on estimates of the Company's S corporation earnings, advances
against such earnings and amounts owed by Mr. Acker to the Company as of June
30, 1996. Mr. Acker will be liable to the Company for distributions made on such
date, if any, that are determined after the closing to exceed the Company's
actual S corporation earnings net of advances against such earnings and amounts
owed by
12
<PAGE>
<PAGE>
Mr. Acker to the Company. To secure performance of this obligation, on the
closing date of this offering, the Company will deposit 5% of Mr. Acker's
distribution in escrow pursuant to an agreement among the Company, Mr. Acker and
an escrow agent (the 'Reorganization Escrow Agreement'). The amount in this
escrow fund will be held by the escrow agent until the Company prepares a
balance sheet reflecting such amounts as of the date of this Prospectus and
receives a report on such amounts by a firm of independent certified
accountants, which balance sheet and report are required to be available within
60 days after the date of this Prospectus. In addition, due to the change in tax
status the Company will record a deferred tax asset of approximately $428,000.
The foregoing transactions collectively are referred to herein as the
'Reorganization.'
13
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<PAGE>
USE OF PROCEEDS
The net proceeds from the sale of the shares of Common Stock offered hereby
(assuming an initial public offering price of $11.00 per share, representing the
midpoint of the range set forth on the cover page of this Prospectus), after
deducting underwriting discounts and expenses payable by the Company, are
estimated to be approximately $13,466,000 (approximately $15,564,000 if the
Underwriters' over-allotment option is exercised in full). The Company intends
to use approximately $1,000,000 to finance the opening or acquisition during the
12-month period following the date of this Prospectus of approximately 15 new
stores in the Tri-state area; approximately $1,000,000 to finance increased
warehouse inventory in connection with the Company's planned new store openings
and acquisitions; approximately $1,900,000 to make a distribution to the
principal shareholder of the Company with respect to taxable income of the
Company through the date of this Prospectus, during which period the Company was
an S corporation for tax purposes (which amount consists of approximately
$3,600,000 of retained earnings net of approximately $1,700,000 of advances);
approximately $750,000 to repay outstanding indebtedness to a bank (the 'Bank
Indebtedness'); approximately $1,000,000 to repay outstanding demand
indebtedness to a corporation controlled by the principal shareholder of the
Company and his wife, each a director and executive officer of the Company (the
'Shareholder Indebtedness'); approximately $540,000 to repay indebtedness
assumed by the Company in connection with the Reorganization; and the balance
for working capital purposes. See 'Reorganization of the Company and Change in
Tax Status' and 'Certain Transactions.' The Company continuously reviews
potential acquisitions to complement its current operations and may seek to
utilize funds allocated to working capital, in whole or in part, for these
acquisitions. The Company presently does not have any agreements, commitments or
arrangements with respect to any proposed acquisitions and there can be no
assurance that any acquisition will be consummated in the future.
The allocation of the net proceeds of this offering set forth above
represents the Company's best estimates based upon its present plans and certain
assumptions regarding general economic and industry conditions and the Company's
future revenues, expenditures and prospects. The Company reserves the right to
reallocate the proceeds within the above described categories or to other
purposes in response to, among other things, changes in its plans, industry
conditions and the Company's future revenues, expenditures and prospects.
Proceeds not immediately required for the purposes described above will be
invested principally in United States government securities, investment-grade,
interest bearing securities, short-term certificates of deposit, money market
funds and/or interest-bearing accounts.
The Bank Indebtedness was incurred pursuant to an existing working capital
facility. This indebtedness matures in January 1997, bears interest at the
bank's prime rate and is secured by a lien on the Company's inventory. The
Shareholder Indebtedness was incurred in connection with two loans made to the
Company during 1995 to provide working capital to the Company. This indebtedness
is unsecured and bears interest at the rate of 12% per annum.
14
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<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
March 30, 1996, (i) on an actual basis, (ii) on a pro forma basis to give effect
to the Reorganization and the recording as a capital lease of the Company's new
lease agreement for its centralized distribution facility/headquarters and (iii)
on a pro forma as adjusted basis to give effect to the Reorganization, the
recording as a capital lease of the Company's new lease agreement for its
centralized distribution facility/headquarters, the issuance and sale of
1,375,000 shares of Common Stock in this offering and the application of the
estimated net proceeds therefrom as described in 'Use of Proceeds' and
'Business -- Properties.'
<TABLE>
<CAPTION>
AS OF MARCH 30, 1996
------------------------------------
PRO FORMA
PRO FORMA AS ADJUSTED
ACTUAL (1) (2)(3)
------ ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Short term debt and capital lease obligations............................... $ 993 $ 2,423 $ 133
------ ----------- -----------
Long term debt and obligations under capital lease.......................... 2,686 5,747 5,747
------ ----------- -----------
Shareholder's equity:
Preferred Stock, $.01 par value, 5,000,000 shares authorized; no shares
outstanding.......................................................... -- --
Common Stock, $.01 par value, 10,000,000 shares authorized; 2,900,000
shares issued and outstanding, actual; 4,275,000 issued and
outstanding, pro forma as adjusted................................... 29 29 43
Additional paid-in capital............................................. 1,855 93 13,545
Retained earnings...................................................... 2,609 -- --
------ ----------- -----------
Total shareholder's equity............................................. 4,493 122 13,588
------ ----------- -----------
Total capitalization.............................................. $8,172 $ 8,292 $19,468
------ ----------- -----------
------ ----------- -----------
</TABLE>
- ------------
(1) Gives effect to the Reorganization, including the distribution to the
Company's principal shareholder of the Company's taxable income through the
closing of this offering in the aggregate amount of approximately $1,900,000
(consisting of approximately $3,600,000 of retained earnings net of
approximately $1,700,000 of advances) as well as the recording as a capital
lease of the new lease agreement. See Note 3 to Consolidated Financial
Statements, 'Reorganization of the Company and Change in Tax Status' and
'Certain Transactions.'
(2) Gives effect to the issuance of 1,375,000 shares of Common Stock in this
offering net of estimated underwriting discounts and expenses payable by the
Company.
(3) Total capitalization assuming the Underwriters' over-allotment option is
exercised in full would be approximately $21,566,000.
DIVIDEND POLICY
The Company was an S corporation for federal and certain state income tax
purposes prior to the date of this Prospectus. Upon the closing of this
offering, the Company will make distributions representing the Company's taxable
income through the date of this Prospectus and the Company's S corporation
status will be terminated. The Company currently intends to retain all future
earnings for use in the operation of its business and, therefore, does not
anticipate paying any cash dividends in the foreseeable future. The declaration
and payment of any cash dividends will be at the election of the Company's
Board of Directors and will depend upon, among other things, the earnings,
capital requirements and financial position of the Company, future loan
covenants and general economic conditions.
15
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<PAGE>
DILUTION
The net tangible book value of the Company's Common Stock as of March 30,
1996 was approximately $3,637,000 or $1.25 per share. Net tangible book value
per share is determined by dividing the net tangible book value of the Company
(tangible assets less total liabilities) by the number of shares of Common Stock
outstanding. Net tangible book value dilution per share represents the
difference between the amount per share paid by purchasers of shares of Common
Stock in the offering made hereby and the pro forma net tangible book value per
share of Common Stock immediately after completion of the offering. Without
taking into account any changes in such net tangible book value after March 30,
1996, other than to give effect to the net proceeds from the sale of the shares
of Common Stock offered hereby, and the distribution of the Company's taxable
income immediately prior to the effective date of this Prospectus, the recording
as a capital lease of the Company's new lease agreement for its centralized
distribution facility/headquarters and the Reorganization, the pro forma net
tangible book value of the Company as of March 30, 1996 would have been
approximately $12,732,000 or $2.98 per share. This represents an immediate
increase in net tangible book value of $3.24 per share to the existing
shareholders and an immediate dilution in net tangible book value of $8.02 per
share to new investors. The following table illustrates this dilution on a per
share basis:
<TABLE>
<S> <C> <C>
Initial public offering price per share(1)................................. $11.00
Net tangible book value per share before the offering................. $ 1.25
Pro forma reduction to shareholders equity(2)......................... (1.51)
Increase attributable to new investors................................ 3.24
------
Pro forma net tangible book value per share after the offering............. 2.98
------
Dilution per share to new investors........................................ $ 8.02
------
------
</TABLE>
- ------------
(1) Representing the midpoint of the range set forth on the cover page of this
Prospectus.
(2) Assuming distribution of $1,900,000 to the Company's principal shareholder,
the assumption of indebtedness in the aggregate amount of $540,000 and
recording of a deferred tax asset of $428,000 all made in connection with
the Reorganization. Also gives effect to the recording as a capital lease of
the new lease agreement for the Company's centralized distribution facility/
headquarters. See 'Reorganization of the Company and Change in Tax Status'
and 'Certain Transactions.'
------------------------
The following table summarizes, on a pro forma basis as of March 30, 1996,
the difference between the existing shareholders and new investors with respect
to the number of shares of the Company owned, the total consideration paid and
the average price paid per share:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
-------------------- --------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing shareholders.................... 2,900,000 67.8% $ 1,884,000 11.1% $ 0.65
New investors............................ 1,375,000 32.2% $15,125,000 88.9% $ 11.00
--------- ------- ----------- ------- ---------
Total............................... 4,275,000 100.0% $17,009,000 100.0% $ 3.98
--------- ------- ----------- ------- ---------
--------- ------- ----------- ------- ---------
</TABLE>
The foregoing tables assume no exercise of any outstanding options to
purchase shares of Common Stock. At March 30, 1996, there were no outstanding
stock options.
16
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<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data for fiscal 1993, 1994
and 1995 are derived from the consolidated financial statements of the Company,
which have been audited by BDO Seidman, LLP, independent certified public
accountants, whose report thereon is included elsewhere herein. The following
selected consolidated financial data for the years ended December 28, 1991 and
January 2, 1993 and for the three months ended April 1, 1995 and March 30, 1996
are derived from the unaudited consolidated financial statements of the Company.
In the opinion of management, the unaudited consolidated financial statements
have been prepared on the same basis as the audited consolidated financial
statements and include all adjustments, consisting only of normal recurring
accruals, necessary for a fair presentation of the financial position and
results of operations for such periods. The selected consolidated financial data
should be read in conjunction with, and are qualified in their entirety by,
'Management's Discussion and Analysis of Financial Condition and Results of
Operations' and the Company's consolidated financial statements, related notes
and other financial information included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE
MONTHS
FISCAL YEAR ENDED ENDED
-------------------------------------------------------------------- -----------
DECEMBER 28, JANUARY 2, JANUARY 1, DECEMBER 31, DECEMBER 30, APRIL 1,
1991 1993 1994 1994 1995 1995
------------ ---------- ---------- ------------ ------------ -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales....................... $ 29,620 $ 35,305 $ 41,402 $ 49,644 $ 59,763 $13,115
Cost of sales, buying and
occupancy..................... 14,330 18,034 21,028 26,418 30,694 6,846
Gross profit.................... 15,290 17,271 20,374 23,226 29,069 6,269
Store expenses.................. 10,442 12,397 14,332 16,512 19,298 4,793
General and administrative
expenses...................... 3,619 3,992 4,825 5,583 5,967 1,451
Total operating expenses........ 14,061 16,389 19,157 22,095 25,265 6,244
Income from operations.......... 1,229 882 1,217 1,131 3,804 25
Other income (expenses)......... (138) (102) 293 (455) (235) (71)
Income before taxes............. 1,091 780 1,510 676 3,569 (46)
Pro forma provision for income
taxes(2)...................... 1,328
Pro forma net income(1)(2)...... 1,991
Pro forma net income per
share(2)(3)................... $ 0.69
Weighted average common shares
outstanding(2)(3)............. 2,900
Supplemental pro forma net
income per share(3)........... $ 0.61
OPERATING DATA (UNAUDITED):
Stores open at end of period.... 56 63 66 75 87 78
Inventory turnover(4)........... 11.5x 8.3x 10.4x 10.7x 10.9x 9.3x
BALANCE SHEET DATA
(AT PERIOD END):
Working capital................. $ (1,413) $ (1,424) $ (658) $ (3,062) $ (1,034) $(2,062)
Total assets.................... 4,770 5,370 9,446 13,792 15,615 11,620
Long-term debt and capital lease
obligations................... 624 679 1,039 1,941 3,094 1,494
Total shareholder's equity...... 214 504 2,533 2,728 4,424 2,754
<CAPTION>
MARCH 30,
1996
-----------
<S> <C>
INCOME STATEMENT DATA:
Net sales....................... $16,045
Cost of sales, buying and
occupancy..................... 8,125
Gross profit.................... 7,920
Store expenses.................. 5,168
General and administrative
expenses...................... 2,039
Total operating expenses........ 7,207
Income from operations.......... 713
Other income (expenses)......... (294)
Income before taxes............. 419
Pro forma provision for income
taxes(2)...................... 143
Pro forma net income(1)(2)...... 214
Pro forma net income per
share(2)(3)................... $ 0.07
Weighted average common shares
outstanding(2)(3)............. 2,900
Supplemental pro forma net
income per share(3)........... $ 0.07
OPERATING DATA (UNAUDITED):
Stores open at end of period.... 88
Inventory turnover(4)........... 13.5x
BALANCE SHEET DATA
(AT PERIOD END):
Working capital................. $(1,980)
Total assets.................... 17,278
Long-term debt and capital lease
obligations................... 2,686
Total shareholder's equity...... 4,493
</TABLE>
- ------------
(1) For fiscal 1995 and for the three months ended March 30, 1996, pro forma net
income reflects a pro forma adjustment in accordance with the increase in
the annual salary of the Company's Chairman of the Board and Chief Executive
Officer to $400,000 from an imputed $150,000. In addition, commencing May 1,
1996, the Company entered into an employment agreement with the new
President of the Company providing for a salary of $200,000 during the first
year thereof, which amount is not reflected in pro forma net income. See
Notes to Consolidated Financial Statements and 'Management.'
(2) Prior to the date of this Prospectus, the Company reported as an S
corporation for federal and certain state income tax purposes. Accordingly,
the Company was not subject to federal and certain state income taxes during
that period. The pro forma income taxes reflect the taxes which would have
been accrued if the Company had elected to report as a C corporation. See
'Reorganization of the Company and Change in Tax Status.'
(footnotes continued on next page)
17
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<PAGE>
(footnotes continued from previous page)
(3) Supplemental pro forma net income per share is based on the weighted average
number of shares of Common Stock used in the calculation of pro forma net
income per share plus the estimated number of shares that would need to be
sold by the Company in order to fund the net cash distribution to the
Company's principal shareholder of approximately $1,900,000 (representing
approximately $3,600,000 of undistributed S corporation taxable income less
advances of approximately $1,700,000 at March 30, 1996), the repayment of a
$1,000,000 loan payable to an affiliate, $750,000 of bank debt and the
vendor loans of $540,000 to be assumed in the Reorganization, all of which
are to be paid out of the net proceeds of this offering. See 'Use of
Proceeds' and 'Reorganization of the Company and Change in Tax Status.'
(4) Inventory turnover is determined by dividing cost of sales by the annual
average inventory, which represents the average inventory at the beginning
and end of each fiscal period.
18
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
consolidated financial statements (including the notes thereto) included in this
Prospectus.
GENERAL
The Company was founded in 1957 when Harry Acker, its current Chairman of
the Board and Chief Executive Officer, opened his first specialty retail bedding
store in Brooklyn, New York. In 1993, in addition to operating under the
Sleepy's name, the Company commenced operating its Kleinsleep stores and in 1995
the Company initiated its telemarketing operations. The number of stores
operated by the Company grew to 46 in 1990, 66 in 1993 and 88 as of the date of
this Prospectus. The Company's stores are located exclusively in the Tri-state
area.
The Company derives all of its revenues from the retail sale of bedding
products, primarily consisting of bed sets. During the last five years, the
Company's net sales increased 100% from approximately $30 million in fiscal 1991
to approximately $60 million in fiscal 1995, primarily as a result of new store
openings, sales growth in existing stores and acquisitions. During the same
five-year period, net income before taxes increased 227% from $1.1 million to
$3.6 million. After giving effect to the increase in the annual salary of the
Company's Chairman of the Board and Chief Executive Officer and for income
taxes, pro forma net income for fiscal 1995 was approximately $2.0 million.
The Company believes that its increased profitability largely is due to
economies created by its distribution capabilities, store operating
efficiencies, relationships with suppliers and knowledge of its market areas and
customers. In addition to opening new stores and expanding its telemarketing
operations, management intends to continue its practice of reviewing the
profitability trends and prospects of existing stores and redeploying capital by
closing or relocating underperforming stores or converting existing stores to
the Company's other store format.
The Company's expansion strategy focuses on new store openings and
acquisitions in existing and contiguous market areas, relocating existing stores
and increasing its telemarketing operations. The Company believes that by
opening new stores it will realize economies of scale in distribution,
advertising and management. The Company expects that its planned expansion
strategy will permit further leveraging of the costs of its centralized
distribution facility/headquarters over the anticipated increase in sales volume
from the addition of new stores and the expansion of its telemarketing
operations.
19
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<PAGE>
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated certain financial
data as a percentage of net sales and the percentage change in the dollar amount
of such data compared to the prior comparable period:
<TABLE>
<CAPTION>
PERCENTAGE OF SALES
------------------------------------------------------------------------
FISCAL YEAR ENDED THREE MONTHS ENDED
------------------------------------------ --------------------------
JANUARY 1, DECEMBER 31, DECEMBER 30, APRIL 1, MARCH 30,
1994 1994 1995 1995 1996
---------- ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
Sales............................ 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales, buying and
occupancy...................... 50.8 53.2 51.4 52.2 50.6
---------- ------ ------ ----------- -----------
Gross profit..................... 49.2 46.8 48.6 47.8 49.4
Operating expenses:
Store expenses.............. 34.6 33.3 32.3 36.5 32.2
General and
administrative............ 11.6 11.2 9.9 11.1 12.8
---------- ------ ------ ----------- -----------
Operating income............ 3.0 2.3 6.4 0.2 4.4
Other income (expense),
net....................... 0.7 (0.9) (0.5) (0.5) (1.8)
---------- ------ ------ ----------- -----------
Income before income
taxes..................... 3.7% 1.4% 5.9 0.3% 2.6
---------- ------ -----------
---------- ------ -----------
Pro forma adjustment for
officer's salary(1)....... -- -- (0.4) -- (0.4)
Pro forma provision for
income taxes.............. (2.2) (0.9)
------ -----------
Pro forma net income........ 3.3% 1.3%
------ -----------
------ -----------
</TABLE>
- ------------
(1) For fiscal 1995 and the three months ended March 30, 1996, total operating
expenses reflects a pro forma adjustment in accordance with the increase in
the annual salary of the Company's Chairman of the Board and Chief Executive
Officer to $400,000 from an imputed $150,000. See Notes to Consolidated
Financial Statements.
THREE MONTHS ENDED MARCH 30, 1996 COMPARED TO THREE MONTHS ENDED APRIL 1, 1995
Net sales for the three months ended March 30, 1996 were $16,045,000, an
increase of $2,930,000, or 22.3%, over net sales of $13,115,000 for the three
months ended April 1, 1995. This increase includes a 5.2% increase in comparable
store sales over the periods. Comparable store sales in any year consist of
sales in stores open during the entirety of that year and that had been in
continuous operation for at least the 13-month period immediately preceding that
year. The increase in net sales primarily was a result of new store openings,
increased sales in existing stores and an increase in telemarketing sales. As of
March 30, 1996, the Company had 88 stores compared to 78 stores as of April 1,
1995. Net sales from telemarketing for the three months ended March 30, 1996,
were $848,000 as compared to $181,000 for the same period in the prior year, an
increase of $667,000.
Cost of sales, buying and occupancy for the three months ended March 30,
1996 was $8,125,000, an increase of $1,279,000, or 18.7%, over cost of sales,
buying and occupancy for the same period a year earlier of $6,846,000. Cost of
sales, buying and occupancy as a percentage of net sales were 50.6% for the
recent period as compared to 52.2% for the earlier period. The resulting
improvement in the gross profit margin over the periods is attributable
primarily to the reduction of competition, principally as a result of the
cessation in October 1995 of certain of the operations in New York State of one
of the Company's major competitors.
Store expenses, which consist of advertising, rent and related occupancy
costs, selling salaries, utilities, insurance and depreciation, for the three
months ended March 30, 1996 were $5,168,000, an
20
<PAGE>
<PAGE>
increase of $375,000, or 7.8%, as compared to $4,793,000 for the same period a
year earlier. The increase in store expenses over the periods principally was
due to an increase of $312,000 in rent expense related to 13 additional stores
opened in the recent period and an increase of $106,000 in selling salaries
related to these additional stores. Store expenses in the recent period were
32.2% of sales as compared to 36.5% for the earlier period. This favorable
decrease in store expenses as a percentage of net sales was due in part to the
increase from $181,000 to $848,000 in net sales from the Company's telemarketing
operations, which require no rent costs, as well as a continued improvement in
store operating economies.
General and administrative expenses for the three months ended March 30,
1996 were $2,039,000, an increase of $588,000, or 40.5%, as compared to
$1,451,000 for the same period a year earlier. General and administrative
expenses as a percentage of net sales were 12.8% for the recent period as
compared to 11.1% for the earlier period. This increase is attributable
primarily to an increase in management and administrative salaries in the
aggregate amount of approximately $270,000 in order to support expansion of the
Company's business.
Interest expense for the three months ended March 30, 1996 was $94,000, an
increase of $23,000 over the $71,000 for the same period a year earlier. The
increase is attributable to increased borrowing for working capital purposes,
including renovation and store expansion. For the three months ended March 30,
1996, other expense was offset by an unrealized gain on investment securities in
the amount of $123,000.
FISCAL 1995 COMPARED TO FISCAL 1994
Net sales for fiscal 1995 were $59,763,000, an increase of $10,119,000, or
20.4%, over net sales for fiscal 1994 of $49,644,000. The increase in net sales
primarily was a result of new store openings, the subletting of ten stores from
a competitor, the commencement of telemarketing operations and increased sales
in existing stores, including an increase of 4.8% in comparable store sales over
the periods. During fiscal 1995, the Company opened or acquired 15 new stores
while closing only three stores, resulting in a total of 87 stores in operation
at the end of the year. During fiscal 1994, the Company opened 12 new stores
while closing only two stores, resulting in a total of 75 stores open at the end
of the year.
Cost of sales, buying and occupancy for fiscal 1995 was $30,694,000, an
increase of $4,276,000, or 16.2%, over cost of sales, buying and occupancy for
fiscal 1994 of $26,418,000. Cost of sales, buying and occupancy as a percentage
of net sales was 51.4% for fiscal 1995 as compared to 53.2% for fiscal 1994.
This improvement in gross profit margin over the periods is attributable
primarily to the reduction of competition (principally as a result of the
cessation in October 1995 of certain of the operations in New York State of one
of the Company's major competitors) and to management's continued practice of
closing or relocating underperforming stores. During fiscal 1995, the Company
closed three stores and relocated eight stores.
Store expenses, which consist of advertising, rent and related occupancy
costs, selling salaries, utilities, insurance and depreciation, for fiscal 1995
were $19,298,000, an increase of $2,786,000, or 16.9%, over store expenses for
fiscal 1994 of $16,512,000. This increase in store expenses is directly related
to the increase in the number of stores during 1995. Store expenses as a
percentage of net sales were 32.3% for fiscal 1995 as compared to 33.3% for
fiscal 1994. This percentage decrease over the periods reflects an improvement
in store operating economies.
General and administrative expenses for fiscal 1995 were $5,967,000, an
increase of $384,000, or 6.9%, over general and administrative expenses for
fiscal 1994 of $5,583,000. General and administrative expenses as a percentage
of net sales were 9.9% for fiscal 1995 as compared to 11.1% for fiscal 1994.
This percentage decrease is attributable primarily to the Company's ability to
leverage fixed expenses over increased net sales through additional stores. The
Company intends to continue this leveraging through its expansion strategy.
Interest expense for fiscal 1995 was $323,000, an increase of $178,000 over
interest expense for fiscal 1994 of $145,000. The increase was due principally
to additional borrowing in connection with increased
21
<PAGE>
<PAGE>
capital expenditures for renovations and store openings, as well as the
completion of improvements to the Company's main headquarters and warehousing
facility.
FISCAL 1994 COMPARED TO FISCAL 1993
Net sales for fiscal 1994 were $49,644,000, an increase of $8,242,000, or
19.9%, over net sales for fiscal 1993 of $41,402,000. This increase includes a
6.5% increase in comparable store sales. During fiscal 1994, the Company opened
or acquired 12 new stores while closing only two stores, resulting in a total of
75 stores in operation at the end of the year. During fiscal 1993, the Company
opened or acquired 12 new stores while closing 10 stores, resulting in a total
of 66 stores open at the end of the year. The Company also believes that net
sales for fiscal 1994 increased in part as a result of the Company's initial
occupancy in September 1994 of its main warehouse and distribution facility.
Cost of sales, buying and occupancy for fiscal 1994 was $26,418,000, an
increase of $5,390,000, or 25.6%, over cost of sales, buying and occupancy for
fiscal 1993 of $21,028,000. Cost of sales, buying and occupancy as a percentage
of net sales was 53.2% for fiscal 1994 as compared to 50.8% for fiscal 1993.
This decline in gross profit margin is primarily attributable to heightened
competition from department stores and other speciality retailers of bedding.
Store expenses for fiscal 1994 were $16,512,000, an increase of $2,180,000,
or 15.2%, over store expenses for fiscal 1993 of $14,332,000. The increase in
store expenses was attributable primarily to the increase in the number of
stores over the periods. Store expenses as a percentage of net sales were 33.3%
for fiscal 1994 as compared to 34.6% in fiscal 1993. This percentage decrease
over the periods reflects management's continued strategy to reduce controllable
store operating expenses such as utilities, insurance and payroll.
General and administrative expenses for fiscal 1994 were $5,583,000, an
increase of $758,000, or 15.7%, over general and administrative expenses for
fiscal 1993 of $4,825,000. The increase over the period was attributable
primarily to the effects of the Company's relocation to its new centralized
distribution facility/headquarters in the fall of 1994, during which the Company
incurred costs of operating two warehouse facilities for a four-month period.
General and administrative expenses as a percentage of net sales were 11.2% for
fiscal 1994 as compared to 11.6% for fiscal 1993 as the Company continued to
leverage these expenses against increased net sales through additional store
growth.
Interest expense for fiscal 1994 was $145,000 as compared to $11,000 in
fiscal 1993. The increase was related to interest expense on the capital lease
for the Company's centralized distribution facility/headquarters entered into
during fiscal 1994.
LIQUIDITY AND CAPITAL RESOURCES
The Company historically has funded its working capital and capital
expenditure requirements from net cash provided by operating activities and
through borrowings under bank credit facilities and a $1,000,000 loan that is
due to a corporation controlled by the principal shareholder of the Company. The
Company believes that the proceeds from this offering, borrowings that will be
available under existing or replacement credit facilities and anticipated cash
flow from operations will be sufficient to meet the Company's working capital
needs and to fund anticipated expansion for at least 12 months from the date of
this Prospectus. The Company intends to use the net proceeds from this offering,
which are estimated to be approximately $13,466,000, to finance planned
expansion (through the opening of new stores and increased warehouse inventory
related thereto), to make a distribution to the principal shareholder of the
Company, and to repay various outstanding indebtedness. After giving effect to
these proposed uses, the expected remaining amount of approximately $7,276,000
will be available for the Company's working capital purposes and potential
acquisitions.
The Company anticipates incurring additional rental and executive
compensation costs following this offering. Upon completion of the planned
expansion of the Company's centralized distribution facility/headquarters, the
annual rental for that facility will increase by approximately $356,000. In
connection with the Company's employment agreements with Harry Acker and Howard
Roeder, the Company will also incur additional annual compensation expense in
the aggregate amount of
22
<PAGE>
<PAGE>
approximately $450,000, exclusive of bonuses. All of these costs also will be
funded by the Company through the proceeds from this offering, borrowings and
anticipated cash flow from operations.
To date, during the current fiscal year, the Company has opened three
stores and closed two stores. During the 12-month period following the date of
this Prospectus, the Company intends to open a total of 15 additional stores and
anticipates closing three stores (all in connection with the expirations of the
leases relating thereto) and relocating one store. The Company expects to incur
initial investment costs of approximately $65,000 to open each new store,
representing the aggregate costs of leasehold improvements, furniture, fixtures,
equipment and inventory. During the 12-month period following the date of this
Prospectus, the Company expects to incur aggregate initial investment costs of
approximately $1,000,000 in connection with its store expansion plans and
approximately $1,000,000 in warehouse inventory to accommodate this expansion.
Management believes that the proceeds of this offering, together with net cash
provided by operating activities, will be sufficient to fund this store
expansion. The Company generally opens new stores within 30 days of signing
leases for new store sites, thereby minimizing lease costs prior to commencement
of store operations. The Company believes that the aggregate costs to be
incurred as a result of store closings and relocation anticipated to take place
during the 12-month period following the date of this Prospectus will be
approximately $75,000.
Net cash provided by operating activities during fiscal 1995, 1994 and 1993
was $3,212,000, $3,556,000 and $1,741,000, respectively. Income from operations
was $3,569,000, $676,000 and $1,510,000 for fiscal 1995, 1994 and 1993,
respectively, which was partially offset by an investment in inventory of
$1,061,000 and $1,088,000 during fiscal 1995 and 1993, respectively. The
investment in inventory during fiscal 1993 was financed by growth in accounts
payable of $2,290,000. Accounts payable in fiscal 1994 grew by $1,188,000 to
finance operations.
Capital expenditures for fiscal 1995, 1994 and 1993 were $2,271,000,
$1,929,000 and $1,139,000, respectively, primarily related to store and building
improvements. The Company expects that capital expenditures for fiscal 1996 will
be approximately $1,800,000. In addition, to date, the Company has advanced
approximately $320,000 to BDC Realty Corp. in connection with planned expansion
of the Company's centralized distribution facility/headquarters, which advances
are evidenced by a demand note of BDC Realty Corp. payable to the Company.
Net cash provided by (used in) financing activities for fiscal 1995, 1994
and 1993 were ($1,698,000), ($835,000) and $314,000, respectively. This was
primarily the result of S corporation distributions of $2,023,000, $624,000 and
$1,005,000 in fiscal 1995, 1994 and 1993, respectively. In 1993 a capital
contribution was made by the principal shareholder of $1,400,000 in connection
with the acquisition of certain assets.
The Company has a $2,000,000 line of credit with a bank expiring on January
31, 1997. Borrowings under the line of credit bear interest at the bank's
commercial prime lending rate and are collateralized by certain assets of the
Company. As of March 30, 1996, there were $800,000 of borrowings under the line
of credit as compared with $370,000 as of December 30, 1995. The Company intends
to pay in full the borrowings under the line of credit and to evaluate various
possible replacement credit facilities.
QUARTERLY FLUCTUATIONS AND SEASONALITY
The Company's business, like that of most retailers, is subject to seasonal
influences. Accordingly, the Company has experienced and expects to continue to
experience quarterly fluctuations in its net sales and net income. The Company
historically has had higher sales and a greater portion of income during the
second and third quarters of the year. The Company expects this trend of
quarterly fluctuations to continue for the foreseeable future. Since basic
bedding merchandise ordinarily constitutes home necessities rather than elective
purchases, the Company believes that it has tended to experience less seasonal
fluctuation than many other retailers. The Company's quarterly results of
operations also may fluctuate as a result of a variety of factors, including the
weather (particularly during the first quarter of the year), the timing of new
store openings and the net sales contributed by the new stores.
23
<PAGE>
<PAGE>
INFLATION
Historically, as merchandise costs have increased due to inflation, the
Company has been able to pass those price increases on to its customers. As a
result, the effect of inflation on the Company's results of operations and
financial condition has been immaterial. There can be no assurance, however,
that in the future the Company will be able to continue to pass on price
increases resulting from inflation.
INCOME TAXES
Prior to the consummation of this offering, the Company, including each of
the Contributed Corporations, has been taxed as an S corporation under the
Internal Revenue Code of 1986, as amended. As a result, the taxable income of
the Company has been reported, for federal and certain state income tax
purposes, directly by the principal shareholder of the Company. Harry Acker, as
the principal shareholder of the Company, has had and will continue to have
obligations for federal and certain state income taxes on the Company's taxable
income through the date of this Prospectus. The S corporation election of the
Company will terminate on the date of this Prospectus. In connection with the
foregoing, on the closing date of this offering Mr. Acker will receive
distributions with respect to the Company's taxable income through the date of
this Prospectus in the aggregate amount of approximately $1,900,000 (consisting
of approximately $3,600,000 of retained earnings net of approximately $1,700,000
of advances against retained earnings). In connection with terminating the
Company's S corporation status, the Company will record deferred taxes for the
effect of cumulative temporary differences, in accordance with Statement of
Financial Accounting Standard No. 109 'Accounting for Income Taxes.' This amount
is estimated to be a deferred tax asset of approximately $428,000, and will be
recorded as income tax credit in the statement of operations upon the
termination of the Company's S corporation status. The deferred tax asset
results from temporary differences between the tax and financial statement
accounting for the Company's operating leases and depreciation. See 'Use of
Proceeds' and 'Reorganization of the Company and Change in Tax Status.'
24
<PAGE>
<PAGE>
BUSINESS
GENERAL
The Company is one of the leading specialty retailers of bedding in the New
York, New Jersey and Connecticut tri-state metropolitan area (the 'Tri-state
area'), where it currently operates 88 stores. Based on the number of its
stores, the Company believes that it also is one of the largest specialty
retailers of bedding in the United States. The Company's sales operations are
conducted through three formats: (i) 68 Sleepy's'tm' stores, which address a
broad customer base and offer an extensive selection of bedding merchandise in a
wide range of prices; (ii) 20 Kleinsleep'tm' stores, which generally are located
in more affluent areas and offer a greater mix of higher-priced bedding
merchandise; and (iii) the Company's 1-800-SLEEPY'S'tm' telemarketing
operations, which commenced in 1995 and offer only products of the nation's
three largest bedding manufacturers to the most convenience-oriented and cost-
conscious consumers.
The Company was founded in 1957 when Harry Acker, its current Chairman of
the Board and Chief Executive Officer, opened his first specialty retail bedding
store in Brooklyn, New York. In 1993, in addition to operating under the
Sleepy's name, the Company commenced operating stores under the Kleinsleep name
and, in 1995, the Company initiated its telemarketing operations. The number of
stores operated by the Company grew to 46 in 1990, 66 in 1993 and 88 as of the
date of this Prospectus. The Company's stores average approximately 3,500 square
feet in size, generally are positioned in high-traffic and high-visibility
locations and follow relatively low-cost opening and operating procedures.
OPERATING STRATEGY
The Company believes that its current operating strategy offers competitive
advantages, including the following:
Broad Market Coverage. By marketing and selling its products through its
three different formats, the Company covers virtually all consumers
throughout the Tri-state area. Sleepy's stores are located in a wide
variety of communities, Kleinsleep stores generally are located in more
affluent areas and the Company's telemarketing operations target the most
convenience-oriented and cost-conscious consumers.
Competitive Pricing. In order to achieve competitive pricing, the Company
maintains relatively low costs of occupancy, labor, distribution of
merchandise and other aspects of its operations. The Company actively
monitors prices of its competitors, including other telemarketers. In
addition, the Company often uses promotional programs and seasonal
specials.
Aggressive Marketing. The Company effectively uses print, radio,
television and other advertising to promote each of its three sales
formats and has achieved broad name recognition in the Tri-state area. The
Company's advertisements for its 1-800-SLEEPY'S telemarketing services
also serve to promote the Sleepy's stores within the same markets. The
Company monitors the effectiveness of its advertising by tracking customer
purchases and has developed a survey system to measure the success of its
advertising's influence on its customers. With this information, the
Company regularly reviews the cost-effectiveness of its spending on
various advertising media.
Centralized Distribution Facility. The Company realizes economies of scale
by servicing stores from its leased centralized distribution
facility/headquarters. This facility enables the Company (i) to reduce the
initial investment costs required to open new stores because significant
inventory does not have to be shipped to or maintained at individual
stores and (ii) to achieve operating efficiencies by consolidating the
receiving, handling, inventory management and distribution functions at a
single location. The Company expects that its proposed expansion strategy
will permit further leveraging of the centralized facility's costs over
the anticipated increase in sales volume from the addition of new stores
and the expansion of its telemarketing operations.
Ongoing Review of Store Performance and Location. The Company continually
reviews the profitability trends and prospects of its stores and evaluates
whether underperforming stores should be closed, relocated to more
desirable locations or converted to the Company's other store format. The
Company believes that it maintains a competitive advantage by utilizing
its
25
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<PAGE>
knowledge of its market areas to negotiate favorable lease terms at many
of its store locations, thereby lowering occupancy costs and permitting
more cost-effective operations. The Company also generally negotiates for
store leases with terms that provide management the flexibility to pursue
various expansion opportunities resulting from changing market conditions.
GROWTH STRATEGY
The Company's goal is to become the dominant retailer of bedding in the
Tri-state area. The Company intends to increase its market penetration in this
area and to expand its operations into contiguous geographic areas. The Company
intends to open or acquire more than 15 stores during the 12 months following
the date of this Prospectus. The Company believes that by opening these new
stores it will realize economies of scale in distribution, advertising and
management. The principal elements of the Company's growth strategy include the
following:
Store Expansion. The Company intends to pursue an aggressive expansion
strategy, primarily through new store openings and acquisitions in the
Tri-state area, as well as in markets contiguous to that area. The Company
believes that opening or acquiring additional stores will increase the
Company's market share and afford greater economies of scale in
distribution, advertising and management.
Expanded Telemarketing. The Company intends to expand its telemarketing
operations. The expansion of these operations, which are conducted from
the Company's main facilities, primarily involves the addition of
personnel (who are compensated on a commission basis) and generally does
not require significant capital expenditures other than additional
programming of management information systems and telephone equipment and
service, and is anticipated to cost approximately $250,000 over the next
12 months.
Increased Advertising. The Company intends to significantly increase its
advertising efforts. During fiscal 1995, the Company's advertising expense
was approximately $3,300,000. The Company intends to increase advertising
expense to approximately $4,000,000 during fiscal 1996, depending on sales
growth. As a result of the extensive penetration in the Tri-state area of
the advertising media used by the Company, the Company believes that its
advertising efforts will be effective in reaching virtually all consumers
throughout its market. The Company also believes that advertising for its
telemarketing operations serves to market its Sleepy's store format, and
vice versa.
Warehouse Expansion. Currently, the Company's centralized distribution
facility/headquarters is being expanded by the landlord/owner from
approximately 151,000 square feet to approximately 230,000 square feet in
accordance with the Company's requirements and specifications. The Company
believes that these improvements will enable the Company to maintain a
larger inventory of products and continue to fulfill its customers' needs
as the Company increases its market share.
STORES
All of the Company's stores are located in high-visibility, high-traffic
commercial areas, including strip shopping centers, major regional shopping
areas, stand-alone sites and malls. Each store has large, readily identifiable
signage, easy access from major roads and adequate customer parking. The stores
range in size from approximately 1,400 square feet to 11,500 square feet, almost
all of which constitutes selling space. The average store consists of
approximately 3,500 square feet.
The Company's stores are open seven days per week, from 10:00 a.m. to 9:00
p.m., Monday through Friday, 10:00 a.m. to 7:00 p.m. on Saturday and 11:00 a.m.
to 6:00 p.m. on Sunday, except where prohibited by local law. The Company's
telemarketing operations are open from 6:00 a.m. to 12:00 midnight, Monday
through Friday, 7:00 a.m. to 11:00 p.m. on Saturday and 7:00 a.m. to 10:00 p.m.
on Sunday. The Company attains store operating efficiencies through
comprehensive merchandise, personnel and information controls. Changes in store
operating procedures and pricing policies are established by senior management
at the Company's headquarters and are disseminated to each store through the
Company's information systems and frequent sales manager meetings. The Company's
store
26
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<PAGE>
level management structure consists of a full-time salesperson, as well as
additional sales associates. Store operations are supervised by approximately
seven district sales managers, each covering a specific geographic area. The
district sales managers, who generally operate in the field and maintain
continuous contact at the store level, report to the Company's senior sales
team, which generally is based at the Company's headquarters.
The Company's sales personnel at its stores are provided extensive training
prior to assignment and receive continuing education through updates on products
and the industry, including through the Company's point-of-sale computer system.
The Company maintains an in-house training program conducted by experienced
sales personnel and management. The sales training includes extensive education
regarding the bedding market and the wide variety of merchandise offered by the
Company. The training also integrates the trainee into the Company-wide sales
strategy and operations. The Company compensates its sales associates through a
combination of salary and commissions on sales. The Company also implements a
variety of sales incentives and benefits to further encourage sales performance.
The following table provides a history of the Company's new store openings
(including acquisitions) and closings over the past five fiscal years and during
the current fiscal year, through the date of this Prospectus:
<TABLE>
<CAPTION>
1996,
1991 1992 1993 1994 1995 TO DATE
---- ---- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C> <C>
Stores open at beginning of period.......................... 46 56 63 66 75 87
Stores opened/acquired during period(1)..................... 11 8 9 10 15 3
Stores closed during period(1).............................. (1 ) (1 ) (6 ) (1 ) (3 ) (2)
---- ---- ---- ---- ---- -------
Stores open at end of period................................ 56 63 66 75 87 88
---- ---- ---- ---- ---- -------
---- ---- ---- ---- ---- -------
</TABLE>
- ------------
(1) Excludes the relocation of one, five, four, two, eight and zero stores in
fiscal 1991, 1992, 1993, 1994, 1995 and 1996, to date, respectively.
The Company's expansion strategy includes consideration of the store format
to be opened. Sleepy's stores generally will be located in a wide variety of
communities. Kleinsleep stores, which are designed and equipped to appeal to a
more upscale customer base, generally will be located in more affluent
communities. In addition to new store openings, the Company will continue its
practice of reviewing the profitability and prospects of existing stores and
redeploying capital by relocating underperforming stores or converting stores to
the Company's other store format.
In choosing specific store sites within a market area, the Company applies
standardized site selection criteria that take into account numerous factors,
including the local demographics, the desirability of available leasing
arrangements, the proximity to existing Company operations and the overall level
of retail activity. The Company believes that it maintains a competitive
advantage by utilizing its knowledge of its market areas to negotiate favorable
lease terms at many of its store locations, thereby lowering occupancy costs and
permitting more cost-effective operations. The Company also generally negotiates
for store leases with terms that provide management the flexibility to pursue
various expansion opportunities resulting from changing market conditions.
The Company expects to incur initial investment costs of approximately
$65,000 to open or relocate a store, exclusive of acquisition costs,
representing the aggregate costs of leasehold improvements, furniture, fixtures,
equipment and inventory. During the 12-month period following the date of this
Prospectus, the Company expects to incur aggregate initial investment costs of
approximately $1,000,000, excluding acquisition costs, in connection with its
15-store planned expansion. In addition, the financing of warehouse inventory
for these new stores is expected to aggregate to approximately $1,000,000. The
Company generally opens new stores within 30 days of signing leases for new
store sites, thereby minimizing lease costs prior to commencement of store
operations. The Company believes that its stores generally become profitable at
the store level within the first four to eight months of operation.
The Company believes that the geographic concentration of the Company's
stores provides the Company with competitive advantages that enhance the
Company's control of store operations and
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enable the Company to respond more quickly to changing market conditions.
District and regional sales managers are able to visit the stores within their
respective geographic areas on a regular basis. Visits by these sales managers
assist in ensuring adherence to the Company's operating standards, in discerning
current market information and in facilitating the Company's sales training
efforts.
PRODUCTS
The Company's stores offer a wide variety of bedding merchandise. Sales of
mattresses and box springs ('bed sets') currently account for approximately 84%
of the Company's revenues, although the Company's stores offer a variety of
other bedding products, including brass beds, iron beds, headboards, footboards,
high risers, day beds, bunk beds, futons, motorized beds, bed frames and related
items. The Company offers only brand name products from all of the major
mattress manufacturers in the United States, including Simmons, Sealy, Serta,
Spring Air, Stearns & Foster, Kingsdown, Aireloom, Eclipse and Eastern. Each
store displays approximately 50 varieties of bed sets. In addition to its broad
selection of merchandise, the Company offers a wide choice of bed sets and other
bedding products, through manufacturers' catalogs.
The merchandise offered at a particular store depends upon the store
format. The Company's Kleinsleep stores offer higher-priced merchandise,
including in particular Stearns & Foster and Aireloom products. The average
retail sale at the Kleinsleep stores is approximately $550. The average retail
sale at the Sleepy's stores, which offer merchandise in a wider range of prices,
is approximately $480. The average retail sale through the 1-800-SLEEPY'S
telemarketing operations, which offer standard national lines of major brand
merchandise similar to that offered by its direct telemarketing competitors, is
approximately $390. The Kleinsleep and Sleepy's stores generally sell different
products to different segments of the market, thereby reducing competition
between the Company's store formats. In addition, the Kleinsleep and Sleepy's
stores offer merchandise not typically available through the Company's
telemarketing operations, thereby reducing competition between the Company's
stores and its telemarketing operations.
The Company's policy is to offer its merchandise at competitive prices in
each of its markets. The Company monitors pricing at competing stores on a
regular basis through pricing surveys to ensure competitive positioning. The
Company's commitment to offer low prices often is supported by price guarantees.
The Company does not ordinarily engage in promotional advertising that
emphasizes 'sale' pricing, but rather emphasizes its policy of consistent
everyday low price leadership. All pricing policies are set centrally by the
Company's management.
PURCHASING
The Company purchases its merchandise directly from the manufacturers. The
purchasing department is assisted by the Company's management information
systems, which provide current inventory, price and volume information by stock
keeping unit ('SKU'), thus allowing quick response to market changes.
The Company annually purchases in excess of 1,200 SKUs of merchandise from
approximately 20 vendors. The Company believes that its volume of purchases and
long-established name and expertise in the bedding industry enable it to obtain
discounts from its principal vendors. During fiscal 1995, the Company's five
largest suppliers accounted for approximately 21.4%, 15.7%, 14.3%, 9.6% and
9.4%, respectively, of the Company's total merchandise purchased. The Company
typically does not maintain long-term purchase contracts with suppliers and
operates principally on a purchase order basis. The Company believes that its
relationship with each of its material vendors is excellent and that its vendors
are highly competitive with each other. Although the Company believes that there
is intense competition among bedding manufacturers and that bedding merchandise
is readily available from alternative suppliers, there can be no assurance that
the loss of any one or more of its suppliers would not have a material adverse
effect on the Company or that suppliers could not increase prices such as to
have an adverse effect on the Company's results of operations.
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MARKETING
The Company uses a multi-media approach in its advertising programs,
employing a combination of print, radio and television advertising. The Company
advertises its store operations primarily through print advertising and its
telemarketing operations primarily through radio and television advertising. The
Company believes that its telemarketing advertising complements its store
operations by promoting the Sleepy's name in general and by improving awareness
of the Company's store locations. The Company advertises continuously throughout
the year, with an emphasis during peak retailing seasons. The Company engages in
repeat and volume advertising with most of the high circulation publications and
certain broadcasters in its markets in order to obtain greater efficiencies and
reduced costs.
The Company maintains its own advertising department for the planning,
preparation and production of virtually all print advertising and for the
coordination of advertising with the Company's merchandising policies and
programs. The Company's print advertising process is highly automated, utilizing
state-of-the-art computer assisted design systems for layout and production. The
Company believes that its automated advertising process provides the Company
with efficient turn-around, flexibility and greater control of all print
production. Advertising in all markets is developed around common themes and
promotions and is designed to maximize exposure of a clear and consistent
message regarding the Company's competitive pricing.
DISTRIBUTION
The Company's distribution capabilities, which are enhanced by the
geographic concentration of its stores, provide significant competitive
advantages and cost efficiencies. The Company's centralized distribution
facility/headquarters consists of approximately 151,000 square feet,
approximately 120,000 square feet of which consists of warehouse space. This
facility currently is being expanded to approximately 230,000 square feet,
approximately 188,000 square feet of which will consist of warehouse space, in
accordance with the Company's requirements and specifications. The Company
believes that these improvements will enable the Company to maintain a larger
inventory of products and continue to fulfill its customers' needs as the
Company increases its market share. This main facility is the Company's sole
centralized distribution center, other than certain limited warehouse space
maintained in Paramus, New Jersey and New Hyde Park, New York. The distribution
center allows the Company to purchase large quantities of merchandise, to
consolidate freight and to facilitate prompt delivery of all items to its
consumers. In order to reduce costs, the Company generally uses numerous
independently contracted delivery services in order to distribute its products
to its consumers. In addition, the Company owns and maintains a fleet of 13 vans
and trucks for inter-store deliveries of merchandise, late-scheduled deliveries
and other purposes. The Company believes that its distribution center, following
the contemplated expansion of the facility, will be sufficient to service all of
the Company's stores to be added in connection with the Company's planned
expansion of stores and telemarketing operations. See 'Business -- Properties'
and 'Certain Transactions.'
The Company's distribution operations commence with the placement of orders
for merchandise directly with the warehouse through a store's point-of-sale
computer terminal. The sale is recorded in the warehouse's mainframe computer
and is printed out in the Company's delivery department. Merchandise generally
is available at the warehouse for delivery within 24 hours. Deliveries to
customers from both store and telemarketing purchases generally are available on
a two-hour, four-hour, same-day, next-day or other basis. Except for two-hour,
four-hour and same-day deliveries, customers routinely are advised on the
morning following their order as to the general time of day at which delivery
will occur. The Company believes that its delivery system offers competitive
advantages and a high degree of customer satisfaction on a cost-effective basis.
As a result of the distribution and warehousing capabilities of its
centralized facility, the Company generally does not maintain inventory at its
stores, but rather consolidates all inventory at its main facility. This
practice reduces the initial investment costs required for opening new stores
and permits increased operating cost efficiencies by consolidating all
receiving, handling, inventory management and distribution operations at a
single location. It is expected that the Company's planned expansion strategy
will permit further leveraging of the centralized facility's costs against the
expected increase in
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sales volume from the addition of new stores and expanded telemarketing
operations, thereby improving profit margins.
MANAGEMENT INFORMATION SYSTEMS
The Company uses information technology to improve customer service, reduce
operating costs and provide the information needed to support management
decisions. The Company has implemented in all of its stores a point-of-sale
computer system utilizing an IBM RS6000 computer and customized software to link
each store to the Company's corporate headquarters and distribution center. This
point-of-sale computer system provides management with operational information
on a daily, per store basis, including inventory, price and sales information by
SKU. This information is used at the store level to respond to local sales
trends. Senior management uses this information to forecast inventory
requirements, which enables the Company to purchase for its distribution center
the appropriate merchandise and quantities needed for distribution to its stores
each week. The Company's point-of-sale computer system also provides real time
information, which reduces cashiers' errors, speeds checkout time and increases
overall store efficiency. Management believes that its point of-sale computer
system and inventory control systems enable the Company to maintain lower
inventory levels, reduce operating costs and respond more promptly to overall
market conditions.
COMPETITION
The retail bedding industry in the United States in general and in the
Company's existing geographic markets in particular is highly competitive and
highly fragmented. The Company's store competitors include a variety of national
and regional chains of retail furniture stores carrying bedding (such as Seaman
Furniture Company, Inc. and Levitz Furniture, Inc.), department store chains
with bedding departments (such as Sears Roebuck and Co. and the Macy's and
Bloomingdales stores of Federated Department Stores, Inc.), regional and local
independent furniture stores carrying bedding and other regional and local
specialty retailers of bedding. The Company's stores also compete with at least
one national and one regional specialty retail bedding chain.
The Company believes that its most significant competitor in New York is a
telemarketer with no retail stores that engages in aggressive broadcast
advertising for its toll-free telephone number. Although the Company's
traditional operations have been through the ownership and operation of retail
stores and therefore not in direct competition with this other telemarketer, the
Company views that company as its largest competitor based on sales volume. In
order to compete more effectively, in 1995 the Company implemented its own
1-800-SLEEPY'S telemarketing operations.
The Company believes that the primary elements of competition in its
industry are merchandise quality, selection, competitive pricing, prompt and
convenient delivery, customer service and store location and design. The Company
believes that it competes successfully with respect to each of these elements
and that its success to date is also attributable to its industry expertise,
long-standing relationships with vendors, experienced sales personnel,
personalized customer service, well-defined merchandising and advertising
programs, careful maintenance of inventory and advantageous arrangements with
vendors. In addition, the Company believes that its buying power gives it a
competitive advantage with respect to the price and value of its offered
merchandise. The Company also believes that its nearly 40 years of operations,
aggressive advertising and 88 stores afford it superior name recognition for
retail bedding in its markets.
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PROPERTIES
The following tables set forth certain information regarding the Company's
current Sleepy's and Kleinsleep stores:
SLEEPY'S STORE LOCATIONS
<TABLE>
<CAPTION>
GROSS SQUARE
LOCATION: FOOTAGE:
- ------------------------------- --------------------
<S> <C>
Bayshore, NY 4,000
Bohemia, NY 5,400
Bridgehampton, NY 2,400
Bronx, NY 2,500
Bronx, NY 1,800
Bronx, NY 5,000
Bronx, NY 2,500
Brooklyn, NY 2,800
Brooklyn, NY 2,140
Brooklyn, NY 3,686
Brooklyn, NY 2,000
Brooklyn, NY 2,850
Brooklyn, NY 1,400
Carle Place, NY 3,300
Carle Place, NY 3,147
Commack, NY 4,000
East Hanover, NJ 6,480
Edison, NJ 3,938
Farmingdale, NY 4,585
Hasbrouck Heights, NJ 3,500
Hicksville, NY 2,680
Hoboken, NJ 2,500
Huntington, NY 5,000
Lawrence, NY 4,200
Lawrence, NY 2,304
Levittown, NY 5,000
Little Falls, NJ 4,400
Lynbrook, NY 2,080
Mamaroneck, NY 3,500
Manhasset, NY 3,296
Manhattan, NY 2,700
Manhattan, NY 2,300
Manhattan, NY 1,800
Manhattan, NY 2,440
<CAPTION>
GROSS SQUARE
LOCATION: FOOTAGE:
- ------------------------------- --------------------
<S> <C>
Manhattan, NY 2,200
Massapequa, NY 5,200
Merrick, NY 3,050
Mount Kisco, NY 2,700
Nanuet, NY 9,200
New Hyde Park, NY 3,500
Oceanside, NY 3,000
Paramus, NJ 11,500
Patchogue, NY 3,000
Plainedge, NY 3,100
Queens, NY 10,000
Queens, NY 2,300
Queens, NY 3,000
Queens, NY 1,600
Queens, NY 2,000
Queens, NY 5,000
Queens, NY 2,900
Riverhead, NY 5,000
Rocky Point, NY 5,100
Secaucus, NJ 4,800
Selden, NY 3,100
Smithtown, NY 3,000
Somerville, NJ 5,000
Springfield, NJ 4,125
Staten Island, NY 4,155
Staten Island, NY 3,300
Staten Island, NY 2,559
Watchung, NJ 2,250
West Babylon, NY 5,000
West Hempstead, NY 2,630
West New York, NJ 2,400
White Plains, NY 2,872
Yonkers, NY 3,278
Yorktown Heights, NY 3,800
</TABLE>
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KLEINSLEEP STORE LOCATIONS
<TABLE>
<CAPTION>
GROSS SQUARE GROSS SQUARE
LOCATION: FOOTAGE: LOCATION: FOOTAGE:
- ------------------ -------------------- ------------------ --------------------
<S> <C>
Brooklyn, NY 2,550
Carle Place, NY 3,200
Commack, NY 4,648
Garden City, NY 3,300
Hicksville, NY 3,360
Huntington, NY 3,500
Lake Grove, NY 3,667
Manhasset, NY 2,850
Manhattan, NY 2,500
Manhattan, NY 3,150
Manhattan, NY 3,000
Nanuet, NY 5,800
Paramus, NJ 2,900
Ozone Park, NY 5,215
Rego Park, NY 2,700
Sayville, NY 4,850
Southampton, NY 6,000
Valley Stream, NY 3,054
Westport, CT 3,120
Yonkers, NY 5,202
</TABLE>
The table below reflects (i) in column A, the number of the Company's store
leases that will expire each calendar year if the Company does not exercise any
of its renewal options or elects to terminate at the earliest possible date
under the terms of the respective lease and (ii) in column B, the number of the
Company's store leases that will expire each calendar year if the Company
exercises all of its renewal options and does not elect to terminate early.
<TABLE>
<CAPTION>
A B
EARLIEST POSSIBLE LATEST POSSIBLE
EXPIRATION DATE EXPIRATION DATE
----------------- ---------------
<S> <C> <C>
1996................................................................. 28 6
1997................................................................. 18 4
1998................................................................. 13 1
1999................................................................. 11 3
2000................................................................. 4 3
2001 and thereafter(1)............................................... 15 72
</TABLE>
- ------------
(1) Includes one location not currently used by the Company as a store. The
Company currently is subletting 60% of the space at this location.
------------------------
Leases for certain of the Company's stores that, prior to the
Reorganization, are leased by separate corporations (the 'Lessee Corporations')
require or may require the consent of the lessors thereunder to the contribution
of the stock of the relevant Lessee Corporation to the Company in the
Reorganization. If consents of the relevant lessors are not obtained, these
corporations will not be included in the Reorganization as of the date of this
Prospectus. Instead, the Company will seek to obtain such consents and
contribution of the stock of such Lessee Corporations to the Company after the
closing. If such consents cannot be obtained, the Company will seek to develop
alternative approaches so that, to the maximum extent possible, the Company will
receive the benefits of each such lease. Although failure by the Company to
acquire the stock of certain Lessee Corporations may, in the aggregate, have a
material adverse effect on the Company, the Company believes that the
Contributed Corporations included in the Reorganization will give the Company
rights under leases sufficient for the Company to conduct its business in all
material respects as disclosed in this Prospectus.
CENTRALIZED DISTRIBUTION FACILITY/HEADQUARTERS
The Company's centralized distribution facility/headquarters located in
Bethpage, New York is leased on a triple net basis from BDC Realty Corp., a
corporation owned by David Acker and A. J. Acker, executive officers of the
Company. This facility includes the Company's sole distribution center, with the
exception of limited satellite warehouse space maintained at the Paramus, New
Jersey and New Hyde Park, New York stores. The facility presently consists of
approximately 151,000 square feet, of which approximately 120,000 square feet
consist of warehouse space. In addition, BDC Realty Corp. has agreed to expand
the facility by constructing approximately 79,000 square feet of additional
space. Approximately 188,000 square feet of the expanded facility's 230,000
square feet will consist of warehouse space. This expansion is expected to be
substantially completed by the end of the current fiscal year and in accordance
with the Company's requirements and specifications for the general
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purpose of accommodating the inventory needs for the Company's recent growth and
planned expansion.
The lease for the facility currently provides for an annual rental of $4.50
per square foot, which represents an aggregate annual rental of approximately
$680,000 before the warehouse expansion and approximately $1,035,000 after the
warehouse expansion, subject to annual adjustments for increases in the consumer
price index. The lease extends through June 2009 and includes two five-year
renewal options, as well as an option to purchase the facility and land at fair
market value on the eighth anniversary and, assuming no transfer gains taxes are
payable in connection therewith (other than upon exercise), each of the
thirteenth, eighteenth and twenty-third anniversaries of the date of the lease.
In addition, on the fifth anniversary of the date of the lease, the Company has
the right to require that BDC Realty Corp. at its option, either (i) sell the
facility and the land to the Company at their then fair market value, or (ii)
reduce the then-current annual rental under the lease to the fair market rate
thereof; provided, however, that the amount of such reduction shall not be
greater than $100,000. Thereafter, the then-current annual rental is subject to
an increase on the eighth anniversary of the date of the lease to the
then-current fair market rental rate up to the amount of the previous reduction,
if any, in the event that the Company does not exercise its purchase option on
such eighth anniversary date. The Company also has a right of first refusal to
purchase the facility in the event that BDC Realty Corp. elects to sell it. The
Company believes that the facility provides sufficient office and warehouse
space for the Company's present needs and that, following the proposed
improvements, it will satisfy the Company's requirements for the foreseeable
future. See 'Certain Transactions.'
TRADEMARKS
The Company has registered certain trademarks with the United States Patent
and Trademark Office, including its principal logo design and the names
'Sleepy's' and related design, 'Kleinsleep,' 'Sleepy's The Mattress
Professionals, We're Wide Awake to Save You Money' and related design, 'Sleepy
Bedding Centers' and related design, 'Sleepy' and related design,
'1-800-Sleepy's,' 'The Mattress Professionals' and 'Sleepy's #1 Sleep Shop In
The Country,' as well as for the trade slogans 'Have More Fun In Bed,' 'We've
Got Your Daybed,' 'We've Got Your Genuine Brass Bed,' 'We've Got Your Hi-Riser,'
'We've Got Your Brass Bed,' 'We've Got Your Electric Bed,' 'We've Got Your Bunk
Bed,' 'We've Got Your Mattress,' 'Sleepy's Crushes The Competition,' 'We've Got
Your Canopy Bed,' 'The Secret Of A Good Night's Sleep' and '1-800-Sleepy's The
Rest is Easy.' The Company's rights to such trademarks will last indefinitely so
long as the Company continues to use and police the marks and to renew filings
with the applicable government agencies. The Company is not aware of any adverse
claim concerning these marks.
GOVERNMENT REGULATION
The Company's operations are subject to state and local consumer protection
and other regulation relating to the bedding industry. These regulations vary
among the states constituting the Tri-state area. The regulations generally
impose requirements as to the proper labeling of bedding merchandise,
restrictions regarding the identification of merchandise as 'new' or otherwise,
controls as to product handling and sale and penalties for violations. The
Company believes that it is in substantial compliance with these regulations and
currently is implementing a variety of measures to promote continuing
compliance.
The Company further believes that its operations currently comply in all
material respects with applicable Federal, state and local environmental laws
and regulations. The Company does not anticipate any significant expenditures in
order to comply with such laws and regulations.
EMPLOYEES
The Company has approximately 375 full time employees, of which
approximately 125 are administrative and warehouse personnel and 250 are sales
personnel, including store managers, district managers and regional managers.
None of the Company's employees is a party to any collective bargaining
agreement. The Company has not experienced any work stoppages and considers its
employee relations to be good.
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LEGAL PROCEEDINGS
In April 1988, Mr. Sid Paterson filed a purported derivative lawsuit on
behalf of Hapat Bedding Corp. ('Hapat') against the Company, Harry Acker,
another individual and, as nominal defendant, Hapat in the Supreme Court of the
State of New York, County of New York. In July 1988, Mr. Paterson filed a
similar derivative lawsuit on behalf of M.J.R. Bedding Co., Inc. ('M.J.R.')
against the Company, Harry Acker, another individual and, as nominal defendant,
M.J.R. in the same Court. Each of Hapat and M.J.R. was a corporation operating a
store under the name Sleepy's and receiving various services from the Company
commencing in 1979. At the time of the commencement of the actions, the
plaintiffs sought (i) in the Hapat action, $1,000,000 in compensatory damages,
plus interest, and $2,000,000 in punitive damages, and (ii) in the M.J.R.
action, $2,560,000 in compensatory damages, plus interest, and $1,000,000 in
punitive damages, in each case for damages allegedly resulting from excessive
fees charged by and payments to the Company in connection with the Company's
provision of these services. The Company continues to vigorously defend the
actions. Trial in the actions, as to which all parties have waived their rights
to a jury, commenced in June 1996.
Harry Acker has agreed to indemnify and hold harmless the Company against
the net amount of any judgment rendered against the Company or any settlement in
the actions, in each case, in excess of the amount currently reserved by the
Company in connection with the actions, including costs and expenses incurred
after the date of this Prospectus. In light of this indemnification arrangement,
the Company does not believe that the actions will have a material adverse
effect on the financial condition of the Company.
34
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS:
The executive officers, directors and nominees for director of the Company
are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------- --- -----------------------------------------------------------------------
<S> <C> <C>
Harry Acker........ 65 Chairman of the Board and Chief Executive Officer
David Acker........ 39 Chief Operating Officer and Director
Howard Roeder...... 38 President
A.J. Acker......... 52 Executive Vice President and Director
Jay Borofsky....... 58 Vice President of Finance and Chief Financial Officer
Joseph Graci....... 37 Controller
Jacqueline Long.... 44 Secretary and Treasurer
</TABLE>
Harry Acker has served as Chairman of the Board and Chief Executive Officer
of the Company since its inception in 1957. Mr. Acker is the spouse of A.J.
Acker and the father of David Acker.
David Acker has served as Chief Operating Officer of the Company since June
1996 and was elected a director of the Company in June 1996. Mr. Acker served as
President of the Company since prior to 1991. Mr. Acker is the son of Harry
Acker.
Howard M. Roeder has served as the President of the Company since May 1996.
Prior to joining the Company and since prior to 1991, Mr. Roeder served as a
director and President of Ortho Mattress, Inc. ('Ortho'), a retailer and
manufacturer of mattresses and related sleep products. Ortho filed for
bankruptcy in 1991 and was reorganized in 1992.
A.J. Acker has served as the Executive Vice President of the Company since
1980 and was elected a director of the Company in June 1996. Ms. Acker oversees
showroom display and public relations for the Company. Ms. Acker is the spouse
of Harry Acker.
Jay Borofsky, a certified public accountant, joined the Company in February
1993 as Vice President of Finance and Chief Financial Officer. From 1988 until
1993, Mr. Borofsky served as Vice President and Chief Financial Officer of
Howard Systems, Inc. a systems consulting firm. Prior thereto, Mr. Borofsky
served as Vice President and Controller of HBSA Industries, Inc., a manufacturer
and builder of retail stores, and as Vice President and Controller of Hayden
Stone & Co., an investment banking company.
Joseph Graci has served as the Controller of the Company since April 1993.
Prior thereto, Mr. Graci worked as Accounting Manager for Saks Fifth Avenue, a
specialty retailer, from 1988 until 1993. From 1984 until 1988, Mr. Graci served
as Senior Auditor, Accounting Analyst and Manager of Expense Payable for
Bloomingdale's, a department store.
Jacqueline Long has served as Secretary and Treasurer of the Company for at
least the last five years and has been employed by the Company for more than 13
years.
All directors of the Company hold office until the next annual meeting of
shareholders and until their successors have been duly elected and qualified. No
committees of the Board have been established to date. Pursuant to the listing
requirements for the Nasdaq National Market, the Company is required to
establish an independent audit committee, which will oversee the auditing
procedures of the Company, receive and accept the reports of the Company's
independent certified public accountants, oversee the Company's internal systems
of accounting and management controls and make recommendations to the Board of
Directors as to the selection and appointment of the auditors for the Company.
Within 90 days following the date of this Prospectus, the Company intends to
satisfy this requirement. A failure by the Company to comply with this
requirement may result in the delisting of the Common Stock from the Nasdaq
National Market. In addition, after the effective date of this offering, the
Company's Executive Bonus Plan and 1996 Stock Option Plan will be administered
by the Compensation Committee of the Board of Directors, which will be comprised
of a majority of independent directors.
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DIRECTORS COMPENSATION
Each non-employee director will be paid an annual fee not in excess of
$12,000, a fee of $1,000 for each meeting of the Board of Directors attended and
$500 for each meeting of a Committee of the Board of Directors attended and is
reimbursed reasonable out-of-pocket expenses in connection therewith.
In addition, the Company's 1996 Stock Option Plan (the 'Stock Option Plan')
provides that each non-employee director of the Company receives formula grants
of stock options as described below. On the effective date of this offering,
each non-employee director of the Company will receive an award under the Stock
Option Plan of immediately-exercisable ten-year options to purchase 1,200 shares
of Common Stock at an exercise price per share equal to the price per share in
this offering. Following this offering, each person who served as a non-employee
director of the Company during all or a part of a fiscal year (the 'Fiscal
Year') of the Company will receive on the immediately following January 31 (the
'Award Date'), as compensation for services rendered in that Fiscal Year, an
award under the Stock Option Plan of immediately exercisable ten-year options to
purchase 1,200 shares of Common Stock (a 'Full Award') at an exercise price
equal to the fair market value of the Common Stock on the Award Date; provided
that each non-employee director who served during less than all of the Fiscal
Year will receive an award equal to one-twelfth of a Full Award for each month
or portion thereof that he or she served as a non-employee director of the
Company. As formula grants under the Stock Option Plan, the foregoing grants of
options to non-employee directors are not subject to the determinations of the
Board of Directors or the Compensation Committee.
EXECUTIVE COMPENSATION
The following table sets forth information concerning compensation for
services in all capacities expensed, awarded to, earned by or paid to of the
Company's Chief Executive Officer and other most highly compensated executive
officers of the Company whose salary and bonus exceeded $100,000 during fiscal
1995 (collectively, the 'Named Executives').
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
--------------------------
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS
- ------------------------------------------------------------------------------------ ---- -------- ------
<S> <C> <C> <C>
Harry Acker ........................................................................ 1995 $150,000 $ 0
Chairman of the Board and
Chief Executive Officer
David Acker ........................................................................ 1995 $163,000 0
Chief Operating Officer
Jay Borofsky ....................................................................... 1995 $100,000 $6,600
Vice President of Finance and
Chief Financial Officer
</TABLE>
EMPLOYMENT AGREEMENTS
Prior to the date of this Prospectus, the Company will enter into an
employment agreement with Harry Acker, pursuant to which he will be employed
full time as the Company's Chairman of the Board and Chief Executive Officer.
The agreement will expire on the second anniversary of its commencement date and
will provide for an annual base salary of $400,000. In addition to his cash
compensation, Mr. Acker receives an automobile allowance, participation in the
Executive Bonus Plan and other benefits, including those generally provided to
other executive officers of the Company. The agreement further provides for a
severance payment of one year's salary upon termination of employment under
certain circumstances. In addition, in the event of the termination of
employment (including termination by Mr. Acker for 'good reason') within two
years after a 'change in control' of the Company, Mr. Acker will (except if
termination is for cause) be entitled to receive a lump-sum payment equal in
amount to the sum of (i) Mr. Acker's base salary and average three-year bonus
through the termination date and (ii) three times the sum of such salary and
bonus. In addition, the Company must in such
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<PAGE>
circumstances continue Mr. Acker's then current employee benefits for the
remainder of the term of the employment agreement. In no case, however, may Mr.
Acker receive any payment or benefit in connection with a change in control in
excess of 2.99 times his 'base amount' (as that term is defined in Section 280G
of the Internal Revenue Code of 1986, as amended (the 'Code').
Commencing May 1, 1996, the Company entered into an employment agreement
with Howard Roeder, pursuant to which he presently is employed full time as the
Company's President. The agreement expires on the third anniversary of its
commencement date and provides for a salary of $200,000 during the first year,
$220,000 during the second year and $242,000 during the third year of the term
of the agreement. In addition to his salary, Mr. Roeder receives an automobile
allowance and participates in various benefits offered by the Company. The
agreement further provides for a severance payment of six months of his annual
salary upon termination of employment under certain circumstances, the amount of
which severance payment would be greater if such termination were to occur
during the first six months of the agreement.
The Company's employment agreement with Harry Acker contains
non-competition provisions that preclude him from competing with the Company for
a period of one year from the date of termination of his employment. The
Company's employment agreement with Howard Roeder contains a non-competition
arrangement of either one or two years following termination of employment,
depending on the circumstances of such termination. In conformity with the
Company's policy, all of its other directors and officers execute
confidentiality and nondisclosure agreements upon the commencement of employment
with the Company. The agreements generally provide that all inventions or
discoveries by the employee related to the Company's business and all
confidential information developed or made known to the employee during the term
of employment shall be the exclusive property of the Company and shall not be
disclosed to third parties without prior approval of the Company. Public policy
limitations and the difficulty of obtaining injunctive relief may impair the
Company's ability to enforce the non-competition and nondisclosure covenants
made by its employees.
EXECUTIVE BONUS PLAN
The Company has established a two-year executive officer bonus plan (the
'Executive Bonus Plan') pursuant to which the Company may pay bonuses to its
current Chief Executive Officer and Executive Vice President in an aggregate
amount equal to 15% of the excess of annual pre-tax income in a given year over
$4,844,000 for fiscal 1996 and $5,328,000 for fiscal 1997. No bonus payments
will be made in a given year if the Company's annual pre-tax income does not
exceed the specified level for that year. Commencing January 1, 1998, the
payment of bonuses for future years will be at the discretion of the
Compensation Committee.
1996 STOCK OPTION PLAN
In June 1996, the Board of Directors adopted and the sole shareholder of
the Company at that time approved the Stock Option Plan. The Stock Option Plan
provides for the grant, at the discretion of the Board of Directors, of (i)
options that are intended to qualify as incentive stock options ('Incentive
Stock Options') within the meaning of Section 422A of the Code to certain
employees and directors, and (ii) options not intended to so qualify
('Nonqualified Stock Options') to employees, directors and consultants. The
total number of shares of Common Stock for which options may be granted under
the Stock Option Plan is 400,000 shares. Other than outstanding options to
purchase Common Stock that have been granted to A.J. Acker, Executive Vice
President and a Director of the Company, no options may be granted under the
Stock Option Plan to Harry Acker or A.J. Acker.
The Stock Option Plan is administered by the Compensation Committee of the
Board of Directors, which determines the terms of options exercised, including
the exercise price, the number of shares subject to the option and the terms and
conditions of exercise. No option granted under the Stock Option Plan is
transferable by the optionee other than by will or the laws of descent and
distribution and each option is exercisable during the lifetime of the optionee
only by such optionee.
The Stock Option Plan provides that each non-employee director of the
Company receives formula grants of stock options as described below. Prior to
this Offering, each non-employee director of the
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<PAGE>
Company will receive an award under the Stock Option Plan of ten-year options to
purchase 1,200 shares of Common Stock at an exercise price per share equal to
the price per share in this offering, exercisable upon the effective date of
this offering. Following this offering, each person who served as a non-employee
director of the Company during all or a part of a fiscal year (the 'Fiscal
Year') of the Company will receive on the immediately following January 31 (the
'Award Date'), as compensation for services rendered in that Fiscal Year, an
award under the Stock Option Plan of immediately exercisable ten-year options to
purchase 1,200 shares of Common Stock (a 'Full Award') at an exercise price
equal to the fair market value of the Common Stock on the Award Date; provided
that each non-employee director who served during less than all of the Fiscal
Year will receive an award equal to one-twelfth of a Full Award for each month
or portion thereof that he or she served as a non-employee director of the
Company. As formula grants under the Stock Option Plan, the foregoing grants of
options to non-employee directors are not subject to the determinations of the
Board of Directors or the Compensation Committee.
The exercise price of all stock options under the Stock Option Plan must be
at least equal to the fair market value of such shares on the date of grant.
With respect to any participant who owns stock possessing more than 10% of the
voting rights of the Company's outstanding capital stock, the exercise price of
any Incentive Stock Option must be not less than 110% of the fair market value
on the date of grant. The term of each option granted pursuant to the Stock
Option Plan may be established by the board, or a committee of the board, in its
sole discretion; provided, however, that the maximum term of each Incentive
Stock Option granted pursuant to the Stock Option Plan is ten years. With
respect to any Incentive Stock Option granted to a participant who owns stock
possessing more than 10% of the total combined voting power of all classes of
the company's outstanding capital stock, the maximum term is five years. Options
shall become exercisable at such times and in such installments as the
Compensation Committee shall provide in the terms of each individual option.
On or prior to the date of this Prospectus, options to purchase 234,400
shares of Common Stock, each having an exercise price per share equal to the
price per share in this offering, will have been granted under the Stock Option
Plan, none of which options has been exercised.
401(K) PLAN
The Company has a deferred compensation plan (the '401(k) Plan') under
Section 401(k) of the Code for all employees who have completed at least 90 days
of service and attained the age of 21. A participant is normally credited with a
year of service for each plan year in which he or she completes at least 1,500
hours of service to the Company. A plan year begins on January 1 and ends
December 31. Each highly compensated participant (as defined in Section 414(q)
of the Code) in the 401(k) Plan may choose to make an elective deferral
contribution (as defined in the 401(k) Plan) by reducing his or her annual
compensation by a minimum of 1% up to a maximum of 15%, up to a current maximum
of $9,500 (as increased each year under the Internal Revenue Service
guidelines). Each non-highly compensated participant in the 401(k) Plan may
elect to make an elective deferral contribution by reducing his or her annual
compensation (as defined in the 401(k) Plan) by a minimum of 1% up to a maximum
of 15%, up to a current maximum of $9,500 (as increased each year under the
Internal Revenue Service guidelines).
A participant is 100% vested in the plan accounts at all times. Each
participant's account receives its pro rata share of the earnings and losses of
the investment funds in which the account was invested.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Board of Directors currently does not, and during 1995 did
not, have a Compensation Committee. Prior to the Reorganization, Harry Acker as
principal shareholder of the Company, determined executive officer compensation,
including his compensation and decisions concerning the transactions described
in 'Certain Transactions' below.
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CERTAIN TRANSACTIONS
During 1996, the Company changed its name from Bedding Discount Center Inc.
to Sleepy's, Inc. Prior to the consummation of this offering, all of the issued
and outstanding shares of capital stock of each of KS Acquisition Corp., a New
York corporation ('KSAC'), Sleepy's International, Inc., a Florida corporation
('SII'), and 1-800-Sleepy's, Inc., a New York corporation ('1-800'), will be
contributed to the Company by Harry Acker and three trusts formed by Mr. Acker
for the benefit of his children, of each of which trusts Mr. Acker is the sole
trustee. Mr. Acker and the trusts collectively own all of such shares to be
contributed. In connection with the contribution of the shares of capital stock
of KSAC, the Company will assume two loans in the aggregate amount of
approximately $540,000 payable by Mr. Acker to vendors. In addition, prior to
the effectiveness of this offering, all of the issued and outstanding shares of
capital stock of certain corporations, which collectively are the lessees of the
sites of all of the Company's stores, will be contributed to the Company by Mr.
Acker and the trusts, which collectively own all such shares to be contributed.
Prior to the consummation of this offering, the Company, including each of
the Contributed Corporations, has been taxed as an S corporation under the
Internal Revenue Code of 1986, as amended. As a result, the Company was not
subject to federal and certain state income tax purposes during that period. Mr.
Acker, as the principal shareholder of the Company, has had and will continue to
have obligations for federal and state income taxes on the Company's taxable
income through the date of this Prospectus. The S corporation election of the
Company, including the Contributed Corporations, will terminate on the date of
this Prospectus. In connection with the foregoing, on the closing date of this
offering Mr. Acker will receive distributions with respect to the Company's
taxable income through the date of this Prospectus in the aggregate amount of
approximately $1,900,000 (consisting of approximately $3,600,000 of retained
earnings net of approximately $1,700,000 of advances). The amount of the
distribution to Mr. Acker on the closing date of this offering will be
calculated based on estimates of the Company's S corporation earnings, advances
against such earnings and amounts owed by Mr. Acker to the Company as of June
30, 1996. Mr. Acker will be liable to the Company for distributions made on such
date, if any, that are determined after the closing to exceed the Company's
actual S corporation earnings net of advances against such earnings and amounts
owed by Mr. Acker to the Company. To secure performance of this obligation, on
the closing date of this offering, the Company will deposit 5% of Mr. Acker's
distribution in escrow pursuant to the Reorganization Escrow Agreement. The
amount in this escrow fund will be held by the escrow agent until the Company
prepares a balance sheet reflecting such amounts as of the date of this
Prospectus and receives a report on such amounts by a firm of independent
certified accountants, which balance sheet and report are required to be
available within 60 days after the date of this Prospectus.
The Company's centralized distribution facility/headquarters facility
located in Bethpage, New York is leased on a triple net basis from BDC Realty
Corp., a corporation owned by David Acker and A.J. Acker, directors and
executive officers of the Company, and the son and spouse, respectively, of the
principal shareholder of the Company. This facility includes the Company's sole
distribution center, with the exception of limited satellite warehouse space
maintained at two of the Company's stores. The facility presently consists of
approximately 151,000 square feet, of which approximately 120,000 square feet
consist of warehouse space. In addition, BDC Realty Corp. has agreed to expand
the facility by constructing approximately 79,000 square feet of additional
warehouse space. BDC Realty Corp. will finance this construction with funds
borrowed from an institutional lender (from which a binding commitment for such
funding shall be obtained prior to the date of this Prospectus) and from Harry
Acker. This expansion would be in accordance with the Company's requirements
and specifications for the general purpose of accommodating the inventory needs
for the Company's recent growth and proposed expansion. The Company has advanced
and will continue to advance funds on behalf of BDC Realty Corp. in connection
with this construction, which advances are and will continue to be evidenced
by demand promissory notes of BDC Realty Corp. to the Company bearing interest
at 8% per annum. As of June 30, 1996, approximately $320,000 had been so
advanced.
In fiscal 1995, the Company paid approximately $594,000 in rent under its
lease arrangements with BDC Realty Corp. The lease for the facility currently
provides for an annual rental of $4.50 per square foot, which represents
aggregate annual rental of approximately $680,000 before this warehouse
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<PAGE>
expansion and approximately $1,035,000 after this warehouse expansion, subject
to annual adjustments for increases in the consumer price index. The lease
extends through June 2009 and includes two five-year renewal options, as well as
options to purchase the facility and land at fair market value on the eighth
anniversary and, assuming no transfer gains taxes are payable in connection
therewith (other than upon exercise), each of the thirteenth, eighteenth
and twenty-third anniversaries of the date of the lease. In addition, on the
fifth anniversary of the date of the lease, the Company has the right to require
that BDC Realty Corp., at its option, either (i) sell the facility and the land
to the Company at their then fair market value, or (ii) reduce the then-current
annual rental under the lease to the fair market rate thereof; provided that
the amount of such reduction shall not be greater than $100,000. Thereafter, the
then-current annual rental is subject to an increase on the eighth anniversary
of the date of the lease to the then-current fair market rental rate up to the
amount of the previous reduction in the event that the Company does not exercise
its purchase option on such eighth anniversary date. The Company also has a
right of first refusal to purchase the facility in the event that BDC Realty
Corp. elects to sell it. The Company believes that the rental rate for the
facility is the fair market rate, based on an independent survey. In addition,
the Company believes that the aggregate terms of the lease are at least as
favorable to the Company as could have been obtained from unrelated third
parties at a comparable facility on a triple net basis. 'Business --
Properties.'
In 1995, a corporation controlled by the Company's principal shareholder
and his wife, each a director and executive officer of the Company, advanced a
total of $1,000,000 to the Company for working capital purposes. These loans are
evidenced by notes bearing interest at 12% per annum. From the net proceeds
of this offering, the Company intends to repay approximately $1,000,000 of
outstanding indebtedness to this corporation and approximately $750,000 of
outstanding indebtedness to a bank (the 'Bank Indebtedness'). In each case, the
indebtedness was incurred in order to provide working capital for the Company.
The Bank Indebtedness is personally guaranteed by Mr. Acker. See 'Use of
Proceeds.'
In April 1988, Mr. Sid Paterson filed a purported derivative lawsuit on
behalf of Hapat Bedding Corp. ('Hapat') against the Company, Harry Acker,
another individual and, as nominal defendant, Hapat in the Supreme Court of the
State of New York, County of New York. In July 1988, Mr. Paterson filed a
similar derivative lawsuit on behalf of M.J.R. Bedding Co., Inc. ('M.J.R.')
against the Company, Harry Acker, another individual and, as nominal defendant,
M.J.R. in the same Court. Each of Hapat and M.J.R. was a corporation operating a
store under the name Sleepy's and receiving various services from the Company
commencing in 1979. At the time of the commencement of the actions, the
plaintiffs sought (i) in the Hapat action, $1,000,000 in compensatory damages,
plus interest, and $2,000,000 in punitive damages, and (ii) in the M.J.R.
action, $2,560,000 in compensatory damages, plus interest, and $1,000,000 in
punitive damages, in each case for damages allegedly resulting from excessive
fees charged by and payments to the Company in connection with the Company's
provision of these services. The Company continues to vigorously defend the
actions. Trial in the actions commenced in June 1996.
Harry Acker has agreed to indemnify and hold harmless the Company against
the net amount of any judgment rendered against the Company or any settlement in
the actions, in each case, in excess of the amount currently reserved by the
Company in connection with the actions, including costs and expenses incurred
after the date of this Prospectus. In light of this indemnification arrangement,
the Company does not believe that the actions will have a material adverse
effect on the financial condition of the Company.
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PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of June 7, 1996, as adjusted to
reflect the Reorganization and the sale of the shares of Common Stock offered
hereby, by (i) each person who is known to the Company to own beneficially more
than 5% of the outstanding shares of Common Stock, (ii) each of the Company's
directors and Named Executives, and (iii) all current directors and executive
officers of the Company as a group. Unless otherwise indicated, each person
named below has sole voting and investment power with respect to all shares of
Common Stock shown as beneficially owned by such person or entity, subject to
community property laws where applicable, and the information set forth in the
footnotes to the table below. The business address of each person named below,
unless otherwise noted, is 175 Central Avenue South, Bethpage, NY 11714.
<TABLE>
<CAPTION>
PERCENT OF SHARES
BENEFICIALLY OWNED
--------------------
NUMBER OF SHARES PRIOR TO AFTER
NAME BENEFICIALLY OWNED(1) OFFERING OFFERING
- ----------------------------------------------------------------------- --------------------- -------- --------
<S> <C> <C> <C>
Harry Acker............................................................ 2,903,000(2) 100.0% 67.9%
David Acker............................................................ 8,750(3) * *
Harry Acker Grantor Retained Annuity Trust for the Benefit of Harry
Acker and David Acker................................................ 203,000 7.0% 4.8%
A.J. Acker............................................................. 2,903,000(4) 100.0% 67.9%
Jay Borofsky........................................................... 6,250(3) * *
All directors and officers as a group
(8 persons).......................................................... 2,911,750 100.0% 67.9%
</TABLE>
- ------------
(1) The securities 'beneficially owned' by a person are determined in accordance
with the definition of 'beneficial ownership' set forth in the regulations
of the Commission and, accordingly, may include securities owned by or for,
among others, the spouse, children or certain other relative of such person
as well as other securities as to which the person has or shares voting of
investment power or has the right to acquire within 60 days after March 30,
1996. The same shares may be beneficially owned by more than one person.
Beneficial ownership may be disclaimed as to certain of the securities.
(2) Includes (i) 203,000 shares owned of record by the Harry Acker Grantor
Retained Trust for the Benefit of Harry Acker and David Acker, (ii) 87,000
shares owned of record by the Harry Acker Grantor Retained Trust for the
Benefit of Harry Acker and Robert Acker, and (iii) 58,000 shares owned of
record by the Harry Acker Grantor Retained Trust for the Benefit of Harry
Acker and Stuart Gregg, as to all of which shares Harold Acker may be deemed
the beneficial owner by virtue of his position as trustee over each trust.
Also includes 3,000 shares deemed to be beneficially owned by his spouse,
A.J. Acker, as to which shares Harry Acker disclaims beneficial ownership.
(3) Consists of shares issuable pursuant to currently-exercisable stock options.
(4) Includes 3,000 shares issuable pursuant to currently-exercisable stock
options. Also includes 2,900,000 shares deemed to be beneficially owned by
her spouse, Harry Acker, as to which shares Ms. Acker disclaims beneficial
ownership.
* Less than 1%.
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DESCRIPTION OF CAPITAL STOCK
The following summary description of the Company's capital stock is
qualified in its entirety by reference to the Company's Certificate of
Incorporation.
COMMON STOCK
The Company is authorized to issue up to 10,000,000 shares of Common Stock,
par value $.01 per share.
Holders of Common Stock are entitled to one vote for each share held of
record on each matter submitted to a vote of shareholders. There is no
cumulative voting for election of directors. Subject to the prior rights of any
series of preferred stock which may from time to time be outstanding, if any,
holders of Common Stock are entitled to receive ratably dividends when, as, and
if declared by the Board of Directors out of funds legally available therefore
and, upon the liquidation, dissolution or winding up of the Company, are
entitled to share ratably in all assets remaining after payment of liabilities
and payment of accrued dividends and liquidation preferences on the preferred
stock, if any. Holders of Common Stock have no preemptive rights and have no
rights to convert their Common Stock into any other securities. The outstanding
Common Stock is, and the Common Stock to be outstanding upon completion of this
Offering will be, duly authorized and validly issued, fully paid and
nonassessable.
Subsequent to the completion of this Offering, Mr. Harry Acker will own
approximately 67.8% of the then-outstanding shares of Common Stock (64.7% if the
Underwriter's over-allotment options are exercised in full) and will be able to
elect all of the members of the Board of Directors and exercise substantial
influence over the outcome of any issues which may be subject to a vote of the
Company's shareholders. See 'Risk Factors -- Control by Principal Shareholder.'
PREFERRED STOCK
The Company is authorized to issue up to 5,000,000 shares of preferred
stock, par value $.01 per share. The preferred stock may be issued in one or
more series, the terms of which may be determined at the time of issuance by the
Board of Directors, without further action by shareholders, and may include
voting rights (including the right to vote as a series on particular matters),
preferences as to dividends and liquidation, conversion and redemption rights
and sinking fund provisions.
No shares of preferred stock will be outstanding as of the closing of this
offering, and the Company has no present plans for the issuance thereof. The
issuance of any such preferred stock could adversely affect the rights of the
holders of Common Stock and therefore, reduce the value of the Common Stock. The
ability of the Board of Directors to issue preferred stock could discourage,
delay or prevent a change in control to the Company. See 'Risk
Factors -- Potential Anti-Takeover Effects of Preferred Stock.'
NEW YORK ANTI-TAKEOVER LAW
The Company, as a New York corporation, is subject to the provisions of
Section 912 of the New York Business Corporation Law and will continue to be so
subject if and for so long as it has a class of securities registered under
Section 12 of the Exchange Act, either (i) it has its principal executive office
and significant business operations or (ii) at least 25% of its total employees
are employed primarily within New York or at least 250 employees are so employed
and at least 10% of the Company's voting stock is owned beneficially by
residents of the State of New York. Section 912 provides, with certain
exceptions, that a New York corporation may not engage in a 'business
combination' (e.g, merger, consolidation, recapitalization or disposition of
stock) with any 'interested shareholder' for a period of five years from the
date that such person first became an interested shareholder unless: (a) the
transaction resulting in a person becoming an interested shareholder, or the
business combination, was approved by the Board of Directors of such corporation
prior to that person becoming an interested shareholder; (b) the business
combination is approved by the holders of a majority of the outstanding voting
stock not beneficially owned by such interested shareholder, or (c) the business
combination
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meets certain valuation requirements for the stock of such corporation. An
'interested shareholder' is defined as any person that (a) is the beneficial
owner of 20% or more of the then outstanding voting stock. These provisions are
likely to impose greater restrictions on an unaffiliated shareholder than on the
existing shareholder who will continue to own a majority of the Company's
outstanding Common Stock after this offering.
TRANSFER AGENT
The Company has appointed Continental Stock Transfer & Trust Company, New
York, New York as Transfer Agent for the Common Stock.
LISTING ON NASDAQ
The Common Stock has been approved for quotation on the Nasdaq National
Market, subject to official notice of issuance, under the symbol 'SLPY'. No
assurance can be given that an active trading market for the Common Stock will
develop, or at what price the Common Stock will trade.
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SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have outstanding
4,275,000 shares of Common Stock. Of these shares, the 1,375,000 shares sold in
this offering will be freely transferable by persons other than 'affiliates' of
the Company without restriction or further registration under the Act. The
remaining 2,900,000 shares of Common Stock outstanding are 'restricted
securities' ('Restricted Shares') within the meaning of Rule 144 under the Act
and may not be sold in the absence of registration under the Act unless an
exemption from registration is available, including an exemption afforded by
Rule 144.
The Company's current shareholders and all of its directors and executive
officers have entered into 'lock-up' agreements with the Representative of the
Underwriters, or are otherwise subject to restrictions provides that, subject to
certain exceptions, they will not offer, sell, contract to sell, pledge, grant
any option for the sale of or otherwise dispose of any shares of Common Stock
for a period of 180 days after the date of this Prospectus without the prior
written consent of the Representative (as defined below). In addition, the
Company may grant stock options to purchase in the aggregate up to 400,000
shares of Common Stock pursuant to the Stock Option Plan; on or prior to the
date of this Prospectus, the Company will have granted options to purchase
232,000 shares of Common Stock under the Stock Option Plan at the initial public
offering price.
Rule 144, as currently in effect, provides that an affiliate of the Company
or a person (or persons whose sales are aggregated) who has beneficially owned
Restricted Shares for at least two years but less than three years is entitled
to sell commencing 90 days after the date of this Prospectus, within any
three-month period a number of shares that does not exceed the greater of one
percent of the then outstanding shares of Common Stock (42,750 shares
immediately after this offering) or the average weekly trading volume in the
Common Stock during the four calendar weeks preceding such sale. Sales under
Rule 144 also are subject to certain manner-of-sale provisions, notice
requirements and the availability of current public information about the
Company. However, a person who is not an 'affiliate' of the Company at any time
during the three months preceding a sale, and who has beneficially owned
Restricted Shares for at least three years, is entitled to sell such shares
under Rule 144(k) without regard to the limitations described above.
Since there has been no public market for shares of the Common Stock, the
Company is unable to predict the effect that sales made pursuant to Rules 144 or
otherwise may have on the prevailing market price at such times for shares of
the Common Stock. Nevertheless, sales of a substantial amount of the Common
Stock in the public market, or the perception that such sales could occur, could
adversely affect market prices. See 'Risk Factors -- Shares Eligible for Future
Sale.'
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UNDERWRITING
The Underwriters named below, for whom Gerard Klauer Mattison & Co., LLC is
acting as the representative (the 'Representative'), have severally agreed,
subject to the terms and conditions of an underwriting agreement (the
'Underwriting Agreement'), to purchase the respective numbers of shares of
Common Stock set forth opposite their names below:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
- --------------------------------------------------------------------------------- ---------
<S> <C>
Gerard Klauer Mattison & Co., LLC................................................
---------
Total....................................................................... 1,375,000
---------
---------
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Common Stock
offered hereby are subject to approval of certain legal matters by counsel and
to certain other conditions. The Underwriters are obligated to take and pay for
all the shares of Common Stock if any are taken.
The Representative has advised the Company that the Underwriters propose to
offer the shares of Common Stock offered hereby initially at the public offering
price per share set forth on the cover page of this Prospectus and in part,
through the Representative, to certain other dealers at such prices less a
concession not in excess of $ per share; that the Underwriters may
allow, and such dealers may reallow, a discount not in excess of $ per
share on sales to other dealers; and that after the initial public offering, the
public offering price, concession and the discount selling terms may be changed
by the Representative. The Underwriters have informed the Company that they do
not intend to confirm sales to any accounts over which they exercise
discretionary authority.
The Company has granted the Underwriters an option, exercisable for 45 days
from the date of this Prospectus, to purchase up to an additional 206,250 shares
of Common Stock, at the initial public offering price less underwriting
discounts. The Underwriters may exercise such option only for the purpose of
covering over-allotments, if any, incurred in connection with the sale of Common
Stock offered hereby. To the extent that the Underwriters exercise such option,
each Underwriter will become obligated, subject to certain conditions, to
purchase the same percentage of such additional shares as the number of other
shares of Common Stock to be purchased by that Underwriter shown on the
foregoing table bears to the total number of shares initially offered hereby.
The Company has agreed to issue the Representative of the Underwriters
warrants to purchase from the Company up to 137,500 shares of Common Stock at an
exercise price per share equal to 120% of the offering price (the 'Warrants').
The Warrants are exercisable for a period of four years beginning one year after
the date of this offering. The Warrants may not be transferred, sold, assigned
or hypothecated for a period of one year commencing from the date of this
offering, except that they may be transferred to successors of the holder, and
may be assigned in whole or in part to any person who is an officer or partner
of the holder or to any of the several Underwriters or members of the selling
group and/or the officers or partners thereof during such period, subject to
compliance with applicable securities laws, and contain provisions for
appropriate adjustments in the event of stock splits, stock dividends,
combinations, reorganizations, recapitalizations and other customary anti-
dilution provisions. The holders of the Warrants have the right, under certain
conditions, to participate
45
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<PAGE>
in future registrations of Common Stock for a period of seven years after the
date of this offering. In addition, the holders of the Warrants have the right,
under certain circumstances, to require the Company to register its Common Stock
for public offering, (i) at the Company's expense, once during the period of
five years after the date of this offering, and (ii) at the expense of the
requesting Warrant holders, once during the period of four years commencing one
year after the date of this offering.
The Company has agreed to grant the Representative the right of first
refusal to act as exclusive underwriter in connection with any future equity or
debt financing, any merger or acquisition activity or any other investment
banking services being considered by the Company (to the extent an investment
banker or other financial advisor or placement agent is retained by the Company)
for a period of two years after the date of this offering.
The Company and substantially all of its officers and directors and
shareholders have agreed with the Underwriters, subject to limited exceptions,
not to offer, sell, pledge, contract to sell, grant any other option to purchase
or otherwise dispose of any shares of Common Stock or any securities convertible
into or exchangeable or exercisable for, or warrants, rights or options to
acquire shares of Common Stock, for a period of 180 days without the prior
written consent of the Representative.
The Company has agreed to pay the Representative a non-accountable expense
allowance of one-half of one percent of the gross proceeds of the offering. The
Company also has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Act, or to contribute to payments
that may be required to make in respect thereof.
Prior to this offering, there has been no public trading market for the
Common Stock of the Company. The Common Stock has been approved for quotation on
the Nasdaq National Market, subject to official notice of issuance, under the
symbol 'SLPY.'
The initial public offering price will be determined through negotiations
between the Company and the Representative. Among the factors to be considered
in such negotiations are the Company's results of operations, the Company's
current financial condition, its future prospects, earnings potential, the state
of the markets for its merchandise, the experience of its management, the
economics of the industry in general, the general condition of the equity
securities market, the demand for similar securities of companies considered
comparable to the Company and other relevant factors. There can be no assurance
that an active trading market will develop for the Common Stock or that the
Common Stock will trade in the public market subsequent to this offering at or
above the initial offering price.
LEGAL MATTERS
The validity of the Common Stock offered hereby has been passed upon for
the Company by Parker Chapin Flattau & Klimpl, LLP, New York, New York. Certain
legal matters will be passed upon for the Underwriters by Paul, Weiss, Rifkind,
Wharton & Garrison, New York, New York.
EXPERTS
The financial statements included in this Prospectus have been audited by
BDO Seidman, LLP, independent certified public accountants, to the extent and
for the periods set forth in their report appearing elsewhere herein, and are
included in reliance upon such report given upon the authority of said firm as
experts in auditing and accounting.
46
<PAGE>
<PAGE>
ADDITIONAL INFORMATION
A Registration Statement on Form S-1 under the Act, including amendments
thereto, relating to the Common Stock offered hereby (the 'Registration
Statement') has been filed by the Company with the Securities and Exchange
Commission (the 'Commission'), Washington D.C. This Prospectus does not contain
all of the information set forth in the Registration Statement and the exhibits
and schedules thereto. For further information with respect to the Company and
the Common Stock offered hereby, reference is made to such Registration
Statement and exhibits and schedules filed as a part thereof. A copy of the
Registration Statement may be inspected by anyone without charge at the Public
Reference Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the regional offices of the
Commission located at 7 World Trade Center, Suite 1300, New York, New York 10048
and Northwest Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of all or any portion of the Registration Statement may
be obtained from the Public Reference Section of the Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549, upon payment of prescribed fees. The
Registration Statement was filed through the Commission's Electronic Data
Gathering, Analysis and Retrieval system and is publicly available through the
Commission's Web site (http://www.sec.gov).
Statements made in this Prospectus as to the contents of any contract,
agreement or other document referred to are not necessarily complete. With
respect to each such contract, agreement or other document filed as an exhibit
to the Registration Statement, reference is made to the exhibit for a more
complete description of the matter involved, and each such statement shall be
deemed qualified in its entirety by such reference.
The Company intends to furnish to its shareholders annual reports
containing audited consolidated financial statements certified by independent
public accountants and quarterly reports containing unaudited consolidated
financial data for the first three quarters of each fiscal year following the
end of each such quarter.
47
<PAGE>
<PAGE>
SLEEPY'S, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
Report of Independent Certified Public Accountants...................................................... F-2
Consolidated balance sheets as of December 31, 1994, December 30, 1995 and March 30, 1996 (unaudited)... F-3
Consolidated statements of income for the years ended January 1, 1994, December 31, 1994 and December
30, 1995 and for the three months ended April 1, 1995 (unaudited) and March 30, 1996 (unaudited)...... F-4
Consolidated statements of stockholder's equity for the years ended January 1, 1994, December 31, 1994
and December 30, 1995 and for the three months ended March 30, 1996 (unaudited)....................... F-5
Consolidated statements of cash flows for the years ended January 1, 1994, December 31, 1994 and
December 30, 1995 and for the three months ended April 1, 1995 (unaudited) and March 30, 1996
(unaudited)........................................................................................... F-6
Notes to consolidated financial statements.............................................................. F-7
</TABLE>
F-1
<PAGE>
<PAGE>
[LETTERHEAD OF BDO SEIDMAN,LLP]
[THE FOLLOWING IS THE FORM OF OPINION WE WILL BE IN A POSITION TO ISSUE UPON THE
COMPLETION OF THE EVENTS DESCRIBED IN NOTE 1(A).]
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Sleepy's, Inc.
We have audited the accompanying consolidated balance sheets of Sleepy's,
Inc. and subsidiaries as of December 31, 1994 and December 30, 1995, and the
related consolidated statements of income, stockholder's equity and cash flows
for each of the three years in the period ended December 30, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Sleepy's,
Inc. and subsidiaries as of December 31, 1994 and December 30, 1995 and the
results of their operations and their cash flows for each of the three years in
the period ended December 30, 1995 in conformity with generally accepted
accounting principles.
/s/BDO SEIDMAN, LLP
Mitchel Field, New York
March 7, 1996, except for Notes 1(a), 1(h), 3, 7, 10(c)
and 11 which are dated , 1996
F-2
<PAGE>
<PAGE>
SLEEPY'S, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 30, PRO FORMA
1996 MARCH 30,
DECEMBER 31, DECEMBER 30, ----------- 1996
1994 1995 -----------
------------ ------------ (UNAUDITED)
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS (NOTE 6)
Current:
Cash and cash equivalents............................. $ 393 $ 250 $ 255 $ 255
Marketable securities................................. -- 166 656 656
Accounts receivable................................... 400 760 413 413
Merchandise inventories............................... 2,567 3,629 4,527 4,527
Prepaid expenses and other current assets............. 910 959 922 922
Advances to affiliate................................. 662 -- -- --
------------ ------------ ----------- -----------
Total current assets.......................... 4,932 5,764 6,773 6,773
Property and equipment, at cost, less accumulated
depreciation and
amortization (Note 2).............................. 3,995 5,419 5,591 5,591
Property under capital leases less accumulated
amortization (Notes 3 and 7)....................... 1,990 1,788 1,739 5,077
Note and loans receivable -- related parties (Note 4)... 1,412 1,243 1,783 --
Intangible assets, net (Note 5)......................... 860 817 856 856
Deposits with lessors and others........................ 603 584 536 536
Deferred tax asset (Note 8)............................. -- -- -- 428
------------ ------------ ----------- -----------
$ 13,792 $ 15,615 $17,278 $19,261
------------ ------------ ----------- -----------
------------ ------------ ----------- -----------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current:
Accounts payable...................................... $ 5,794 $ 5,520 $ 6,151 $ 6,151
Bank credit line (Note 6)............................. 975 -- 800 800
Customer deposits payable............................. 299 638 833 833
Current maturities of obligations under capital lease
(Note 7)......................................... 238 217 193 83
Accrued expenses and taxes payable.................... 688 423 776 776
Loans from vendors (Note 1(a))........................ -- -- -- 540
Loan from affiliate (Note 4).......................... -- -- -- 1,000
S distributions payable (Note 1(a))................... -- -- -- 1,863
------------ ------------ ----------- -----------
Total current liabilities..................... 7,994 6,798 8,753 12,046
Obligations under capital lease (Note 7)................ 1,941 1,724 1,686 5,747
Bank credit line (Note 6)............................... -- 370 -- --
Deferred rent........................................... 1,129 1,299 1,346 1,346
Loan from affiliate (Note 4)............................ -- 1,000 1,000 --
------------ ------------ ----------- -----------
Total liabilities............................. 11,064 11,191 12,785 19,139
------------ ------------ ----------- -----------
Commitments and Contingencies (Notes 4, 7, 10 and 11)...
Stockholders' equity (Notes 1(a) and 11):
Preferred stock, $.01 par value, 5,000,000 shares
authorized; no shares outstanding................ -- -- -- --
Common stock -- $0.01 par value, 10,000,000 shares
authorized; 2,900,000 issued and outstanding..... 29 29 29 29
Additional paid-in capital............................ 1,667 1,817 1,855 93
Retained earnings..................................... 1,032 2,578 2,609 --
------------ ------------ ----------- -----------
Total stockholders' equity.................... 2,728 4,424 4,493 122
------------ ------------ ----------- -----------
$ 13,792 $ 15,615 $17,278 $19,261
------------ ------------ ----------- -----------
------------ ------------ ----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
<PAGE>
SLEEPY'S, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
------------------------------------------- --------------------------
<S> <C> <C> <C> <C> <C>
JANUARY 1, DECEMBER 31, DECEMBER 30, APRIL 1, MARCH 30,
1994 1994 1995 1995 1996
----------- ------------ ------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
Net sales................................. $41,402 $ 49,644 $ 59,763 $13,115 $16,045
Cost of sales, buying and
occupancy.......................... 21,028 26,418 30,694 6,846 8,125
----------- ------------ ------------ ----------- -----------
Gross profit.................... 20,374 23,226 29,069 6,269 7,920
----------- ------------ ------------ ----------- -----------
Operating expenses:
Store expenses....................... 14,332 16,512 19,298 4,793 5,168
General and administrative expenses
(Note 4)........................... 4,825 5,583 5,967 1,451 2,039
----------- ------------ ------------ ----------- -----------
Total operating expenses........ 19,157 22,095 25,265 6,244 7,207
----------- ------------ ------------ ----------- -----------
Income from operations............... 1,217 1,131 3,804 25 713
----------- ------------ ------------ ----------- -----------
Other income (expense):
Interest expense..................... (11) (145) (323) (71) (94)
Loss on disposal of fixed assets
(Note 4)........................... -- (338) (11) -- (25)
Gain on sale of investment
securities......................... -- -- 57 -- --
Miscellaneous income (expenses)
(Note 1(f))........................ 304 28 42 -- (175)
----------- ------------ ------------ ----------- -----------
Total other income (expense),
net........................... 293 (455) (235) (71) (294)
----------- ------------ ------------ ----------- -----------
Net income........................... $ 1,510 $ 676 $ 3,569 $ (46) $ 419
----------- ------------ ------------ ----------- -----------
----------- ------------ ------------ ----------- -----------
Pro forma (Note 1(h)):
Historical net income................ $3,569 $419
Pro forma adjustment to reflect
increase in officers'
compensation....................... (250) (62)
------------ -----------
3,319 357
Pro forma provision for income taxes
(Note 8)........................... 1,328 143
------------ -----------
Pro forma net income................. $1,991 $214
------------ -----------
------------ -----------
Pro forma net income per share (Note
1(j)).............................. $0.69 $0.07
------------ -----------
Weighted average common shares and
share equivalents outstanding (Note
1(j)).............................. 2,900 2,900
------------ -----------
------------ -----------
Supplemental net income per share
(Note (1(j))....................... $0.61 $0.07
------------ -----------
------------ -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
<PAGE>
SLEEPY'S, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
$0.01 PAR VALUE
------------------- ADDITIONAL TOTAL
NUMBER PAID-IN RETAINED STOCKHOLDER'S
OF SHARES AMOUNT CAPITAL EARNINGS EQUITY
--------- ------ ---------- -------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance, January 3, 1993.............................. 2,900 $ 29 $ -- $ 475 $ 504
Capital contribution............................. -- -- 1,400 -- 1,400
S Corporation distributions...................... -- -- -- (1,005 ) (1,005)
Contribution of stockholder salary (Note 1(t))... -- -- 124 -- 124
Net income....................................... -- -- -- 1,510 1,510
--------- ------ ---------- -------- -------------
Balance, January 1, 1994.............................. 2,900 29 1,524 980 2,533
S Corporation distributions...................... -- -- -- (624 ) (624)
Contribution of stockholder salary (Note 1(t))... -- -- 143 143
Net income....................................... -- -- -- 676 676
--------- ------ ---------- -------- -------------
Balance, December 31, 1994............................ 2,900 29 1,667 1,032 2,728
S Corporation distributions...................... -- -- -- (2,023 ) (2,023)
Contribution of stockholder salary (Note 1(t))... -- -- 150 150
Net income....................................... -- -- -- 3,569 3,569
--------- ------ ---------- -------- -------------
Balance, December 30, 1995............................ 2,900 29 1,817 2,578 4,424
S Corporation distributions (unaudited).......... -- -- -- (388 ) (388)
Contribution of stockholder salary (Note 1(t))
(unaudited).................................... -- -- 38 -- 38
Net income for three months ended March 30, 1996
(unaudited).................................... 419 419
--------- ------ ---------- -------- -------------
Balance, March 30, 1996 (unaudited)................... 2,900 29 1,855 2,609 4,493
Pro forma adjustments (unaudited -- Note 1(a)):
Distributions of previously taxed earnings....... -- -- -- (3,646 ) (3,646)
Assumption of loans.............................. -- -- -- (540 ) (540)
Capital distribution (Note 3).................... -- -- -- (613 ) (613)
Deferred income taxes (Note 8)................... -- -- -- 428 428
Reclassification of S corporation deficit........ -- -- (1,762) 1,762 --
--------- ------ ---------- -------- -------------
Pro forma balance March 30, 1996 (unaudited).......... 2,900 $ 29 $ 93 $ -- $ 122
--------- ------ ---------- -------- -------------
--------- ------ ---------- -------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
<PAGE>
SLEEPY'S, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (NOTE 9)
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
---------------------------------------- ---------------------
JANUARY 1, DECEMBER 31, DECEMBER 30, APRIL 1, MARCH 30,
1994 1994 1995 1995 1996
---------- ------------ ------------ -------- ----------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income............................................ $ 1,510 $ 676 $ 3,569 $ (46) $ 419
---------- ------------ ------------ -------- ----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Loss on disposal of fixed assets................. -- 338 11 -- 25
Depreciation and amortization.................... 795 696 1,040 244 222
Allowance for uncollectible balances............. 440 71 -- -- --
Gain on sale of securities....................... -- -- (57) -- --
Deferred rent.................................... 177 273 170 18 47
Other............................................ -- -- (21) -- 177
Stockholder salary............................... 124 143 150 38 38
(Increase) decrease in:
Accounts receivable......................... (273) (471) (360) 359 347
Merchandise inventories..................... (1,088) 55 (1,061) 394 (897)
Prepaid expenses and other current assets... (1,254) 627 (49) (160) 81
Deposit with lessors and others............. (30) (114) 19 (11) 48
Increase (decrease) in:
Accounts payable............................ 2,290 1,188 (274) (412) 630
Customer deposits payable................... (96) 88 339 (109) 195
Accrued expenses and taxes payable.......... (854) (14) (264) (138) 53
---------- ------------ ------------ -------- ----------
Total adjustments...................... 231 2,880 (357) 223 966
---------- ------------ ------------ -------- ----------
Net cash provided by operating
activities.......................... 1,741 3,556 3,212 177 1,385
---------- ------------ ------------ -------- ----------
Cash flows from investing activities:
Capital expenditures.................................. (1,139) (2,220) (2,231) (644) (366)
Acquisition of Kleinsleep assets...................... (1,400) -- -- -- --
Purchase of marketable securities..................... -- -- (268) -- (366)
Proceeds from sale of marketable securities........... -- -- 180 -- --
Loan to affiliate..................................... -- (662) -- (33) (44)
Repayments of loan to affiliate....................... -- -- 662 -- --
---------- ------------ ------------ -------- ----------
Net cash used in investing
activities.......................... (2,539) (2,882) (1,657) (677) (776)
---------- ------------ ------------ -------- ----------
Cash flows from financing activities:
S Corporation distributions........................... (1,005) (624) (2,023) (11) (388)
Repayments of long-term borrowings and obligations
under capital lease................................ -- (131) (238) (46) (61)
Borrowings from affiliate............................. -- -- 1,000 300 --
Repayments of short term borrowings................... -- -- (605) -- --
Advances (repayments) from/to related parties......... (577) (787) 168 (128) (540)
Proceeds from debt.................................... 496 707 -- 175 385
Capital contribution.................................. 1,400 -- -- -- --
---------- ------------ ------------ -------- ----------
Net cash provided by (used in)
financing activities................ 314 (835) (1,698) 290 (604)
---------- ------------ ------------ -------- ----------
Net increase (decrease) in cash and cash equivalents.... (484) (161) (143) (210) 5
Cash and cash equivalents -- beginning of period........ 1,038 554 393 393 250
---------- ------------ ------------ -------- ----------
Cash and cash equivalents -- end of period.............. $ 554 $ 393 $ 250 $ 183 $ 255
---------- ------------ ------------ -------- ----------
---------- ------------ ------------ -------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
<PAGE>
SLEEPY'S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED APRIL 1, 1995 AND MARCH 30,
1996 IS UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
(A) REORGANIZATION
During June 1996, Bedding Discount Center Inc. changed its name to
Sleepy's, Inc. ('Sleepy's'). Prior to the effectiveness of the Company's planned
initial public offering (the 'Offering'), all of the issued and outstanding
shares of capital stock of KS Acquisition Corp., a New York corporation
('KSAC'), Sleepy's International, Inc., a Florida corporation ('SII'), and 1-800
Sleepy's, Inc., a New York corporation ('1-800') and certain shell corporations
which collectively are the lessees of the sites of most of the Company's stores,
will be contributed to the Company by the principal shareholder of Sleepy's and
the three trusts formed by the principal shareholder (Note 11). The principal
shareholder and the trusts collectively own all such shares. In connection with
the contribution of KSAC, the Company will assume the principal shareholder's
personal loans from vendors related to the original acquisition of KSAC. The
loans are approximately $540,000 and will be accounted for as a distribution of
capital.
The consolidated financial statements include the accounts of Sleepy's,
KSAC, SII, 1-800 and the related real estate companies, (collectively the
'Company'). The financial statements have been prepared as if the entities had
operated as a single consolidated group since their respective dates of
organization because of their common ownership and the planned contribution of
shares to Sleepy's. All significant intercompany balances and transactions have
been eliminated.
Prior to the date of this Prospectus, the Company has been taxed as an S
corporation under the Internal Revenue Code of 1986, as amended. As a result,
the taxable income of the Company has been reported, for federal and certain
state income taxes purposes, directly by the principal shareholder of the
Company. The S corporation election of the Company will terminate on the date of
this Prospectus. In connection with the foregoing, on the closing date of this
Offering, the principal shareholder will receive a distribution of approximately
$1.9 million representing the Company's previously taxed and undistributed S
Corporation income through the closing of this Offering (approximately $3.6
million at March 30, 1996) less loans receivable from the principal shareholder
of approximately $1.7 million (Note 4).
In addition, in June 1996, Sleepy's effected a 29,000 to one stock split
which increased the issued and outstanding shares of Sleepy's to 2,900,000
shares.
The equity accounts of Sleepy's have been retroactively adjusted to reflect
the common stock of Sleepy's as the only class of common stock and to reflect
(i) the 29,000 to one stock split of Sleepy's common stock; and (ii) the
contribution of the common stock of KSAC, SII, 1-800 and the related real estate
companies to Sleepy's. The transactions described above are collectively
referred to as the 'Reorganization.'
The pro forma consolidated balance sheet and consolidated statement of
stockholder's equity have been presented to reflect the following transactions
as if they occurred at March 30, 1996:
(a) The recording of the distribution for the previously taxed
undistributed S Corporation earnings of approximately $3,600,000
at March 30, 1996 less the related party loans from the principal
shareholder of approximately $1,700,000 resulting in net a
liability of approximately $1,900,000;
(b) The assumption of $540,000 of loans outstanding to certain
vendors;
(c) The recording of a deferred tax asset of $428,000 (Note 8)
resulting from the termination of S corporation status;
(d) The recording of the capital lease described in Note 3;
(e) The reclassification of the S corporation deficit of $1,762,000 to
additional paid in capital, and;
F-7
<PAGE>
<PAGE>
SLEEPY'S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED APRIL 1, 1995 AND MARCH 30,
1996 IS UNAUDITED)
(f) Reclassification to current liabilities of $1,000,000 loans
payable to affiliate (Note 4) expected to be paid out of the
proceeds of the Offering.
(B) DESCRIPTION OF THE COMPANY
Sleepy's and KSAC (d/b/a 'Kleinsleep') are retail distributors of bedding
products (mattresses, frames and headboards) throughout the New York, New Jersey
and Connecticut tri-state metropolitan area. SII owns certain trademarks used in
the operations. 1-800 operates the Company's telemarketing division. Included in
the accounts of the Company in 1994 and 1995, are the accounts and transactions
of 68 and 67, respectively, real estate shell companies which collectively are
the lessees of most of the Company's stores.
(C) COMPANY'S YEAR END
The Company's financial statements are prepared on a fifty-two, fifty-three
week year which ends on the Saturday closest to December 31 each year. The years
ended January 1, 1994, December 31, 1994 and December 30, 1995 were 52 week
years.
(D) PROPERTY, EQUIPMENT AND DEPRECIATION AND AMORTIZATION
Property and equipment are recorded at cost. Depreciation has been
calculated principally on the straight-line and the declining balance methods
over the estimated useful lives of property and equipment. Amortization of
assets under capital lease is calculated on a straight-line basis over the term
of the lease.
(E) USE OF ESTIMATES
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements and
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
(F) MARKETABLE SECURITIES
All of the Company's marketable securities are classified as trading
securities and have been so classified since the Company originally purchased
them with the intention of selling them in the short term. As such, the
securities are carried at market value with unrealized gains and losses included
as current period income or expense. Unrealized gains on investments in
securities of $21,000 and $123,000 in fiscal 1995 and the three months ending
March 30, 1996, respectively, are included in other income.
(G) MERCHANDISE INVENTORIES
Inventories, consisting of finished bedding products, are stated at the
lower of cost or market. Cost is determined by the first-in, first-out method.
(H) PRO FORMA OPERATING ADJUSTMENTS
The Company's Chairman of the Board and Chief Executive Officer has agreed
to enter into a two-year employment agreement with the Company prior to the
effective date of the Offering providing a base salary of $400,000. A pro forma
adjustment for the excess of the aggregate annual amount of the compensation
that would have been due under this agreement over the actual compensation
expense
F-8
<PAGE>
<PAGE>
SLEEPY'S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED APRIL 1, 1995 AND MARCH 30,
1996 IS UNAUDITED)
during the year ended December 30, 1995 and the three months ended March 30,
1996 is provided for a more indicative presentation of the effect of future
compensation.
Pro forma tax provisions have been calculated as if the Company's results
of operations were taxable as a C Corporation (the Company's expected tax
status) under the Internal Revenue Service Code for the year ended December 30,
1995 and for the three months ended March 30, 1996 (Notes 1(i) and 8).
(I) INCOME TAXES
The Company, with the consent of its principal shareholder, elected to be
treated as an S Corporation. As a result of the election, all earnings of the
Company were taxed directly to the principal shareholder. The Company has
provided for certain minimum taxes and taxes applicable to taxing authorities
that do not recognize S Corporation status. The aggregate of such taxes is not
material and is included in general and administrative expenses.
(J) PRO FORMA NET INCOME PER SHARE
Pro forma net income per share is based on the weighed average number of
shares of common stock outstanding during each period. All references in the
financial statements with regard to average number of shares of common stock and
related per share amounts have been calculated giving retroactive effect to the
stock split and the exchange of shares in the Reorganization.
Supplemental pro forma net income per share is based on the weighted
average number of shares of common stock and common stock equivalents used in
the calculation of pro forma income per share (2,900,000 at December 30, 1995
and March 30, 1996), plus the estimated number of shares (378,000) that would
need to be sold by the Company in order to fund the net cash distribution of the
Company's previously taxed undistributed S Corporation earnings (approximately
$1,900,000 as of March 30, 1996 (Note 1(a)) the repayment of $540,000 of assumed
vendor loans payable in connection with the Reorganization and the repayment of
the $1,000,000 loans payable to an affiliate (Note 4) and $750,000 of
outstanding bank debt all of which are to be paid out of the proceeds of the
initial public offering.
(K) REVENUE RECOGNITION
Sales are recorded upon the delivery of products. Any customer deposits
received are recorded as a liability until the Company completes delivery, at
which time the deposits are recorded as sales. Allowances for estimated sales
returns are provided for when sales are recorded.
(L) ADVERTISING COSTS
The Company capitalizes the cost of advertisements which meet the criteria
of direct-response advertising and amortizes such costs over 12 months or the
period of running the advertisement, whichever is shorter. All other costs are
expensed as incurred. Advertising expenses for the three fiscal years in the
period ended December 30, 1995 was $2,744,000, $2,801,000 and $3,244,000,
respectively. Advertising expenses for the three months ended April 1, 1995 and
March 30, 1996 were $1,066,000 and $723,000, respectively.
(M) CASH AND CASH EQUIVALENTS
The Company considers all highly liquid instruments with a maturity of
three months or less when purchased to be cash equivalents.
F-9
<PAGE>
<PAGE>
SLEEPY'S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED APRIL 1, 1995 AND MARCH 30,
1996 IS UNAUDITED)
(N) CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentration of credit risk consist principally of temporary cash investments.
The Company places its temporary cash investments with financial institutions
insured by the FDIC. At times, such investments were in excess of the FDIC
insurance limit.
(O) INTANGIBLE ASSETS
Intangible assets, which consist of trademarks, leases and deferred
mortgage costs, are amortized on a straight-line basis over their estimated
useful lives.
(P) DEFERRED RENT
The Company accounts for rent on a straight line basis. The effect of such
adjustment for the years ended January 1, 1994, December 31, 1994 and December
30, 1995 was to reduce income from operations by approximately $177,000,
$273,000 and $169,000, respectively. For the three months ended April 1, 1995
and March 30, 1996, the effect on income from operations was $18,100 and
$47,100, respectively.
(Q) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of financial instruments, including cash, marketable
securities and short-term debt, approximated fair value as of December 31, 1994
and December 30, 1995. The carrying value of long-term debt, including the
current portion, approximated fair value as of December 31, 1994 and December
30, 1995, based upon the borrowing rates currently available to the Company for
bank loans with similar terms and maturities.
(R) RECENT ACCOUNTING PRONOUNCEMENTS
The Company adopted Statement of Financial Accounting Standard ('SFAS') No.
121 'Accounting for Long Lived Assets and for Assets to be Disposed Of' for the
year ended December 30, 1995. The adoption of FAS 121 did not have a material
effect on the consolidated financial statements.
In October 1995, SFAS No. 123, 'Accounting for Stock-Based Compensation',
was issued. SFAS No. 123 establishes a fair value method for accounting for
stock-based compensation plans either through recognition or disclosure. The
Company intends to adopt the employee stock-based compensation provisions of
SFAS No. 123 by disclosing the pro forma net income and pro forma net income per
share amounts assuming the fair value method was adopted January 1, 1995. The
adoption of this standard will not impact the Company's consolidated results of
operations, financial position or cash flows.
(S) CREDIT RISK
Finance options are offered to consumers through non-affiliated third
parties, at no material risk to the Company. Non-financed retail consumer
receivables are collected during the normal course of operations. There is no
significant concentration of credit risk and credit losses have been minimal.
(T) PRINCIPAL SHAREHOLDER SALARY
In accordance with Staff Accounting Bulletin ('SAB') No. 79, the Company
recorded a salary expense for the services rendered by the principal shareholder
to the Company. The Company recorded additional salary expense over amounts paid
and a capital contribution of $124,000, $143,000, $150,000, for the three years
in the period ended December 30, 1995 and $38,000 for the three months ended
F-10
<PAGE>
<PAGE>
SLEEPY'S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED APRIL 1, 1995 AND MARCH 30,
1996 IS UNAUDITED)
April 1, 1995 and March 30, 1996, respectively. The imputed amounts are based on
the historical salary drawn by the principal shareholder in prior years.
(U) INTERIM PERIODS
The financial statements and related notes thereto as of March 30, 1996 and
for the three months ended April 1, 1995 and March 30, 1996 are unaudited and
have been prepared on the same basis as the audited financial statements
included herein. In the opinion of management, such unaudited financial
statements include all adjustments necessary to present fairly the information
set forth therein. These adjustments consist solely of normal recurring
accruals. The interim results are not necessarily indicative of the results for
any future period.
(V) STORE OPENING AND CLOSING COSTS
The Company expenses store opening costs as incurred. All expenses related
to a store closing are accrued commencing upon management's decision to cause
such a closure.
2. PROPERTY AND EQUIPMENT
A summary of property and equipment and the estimated lives used in the
computation of depreciation and amortization is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 30, MARCH 30, USEFUL
1994 1995 1996 LIVES
------------ ------------ --------- ------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Building and leasehold improvements.................. $4,508 $6,100 $ 6,326 5-20
Computer and computer software....................... 1,049 1,351 1,460 5-7
Machinery and equipment.............................. 633 773 788 5
Furniture and fixtures............................... 666 690 701 5-10
Automotive equipment................................. 195 282 282 5
Office equipment..................................... 200 227 231 5
Other................................................ -- 47 47
------------ ------------ ---------
7,251 9,470 9,835
Less accumulated depreciation and amortization....... 3,256 4,051 4,244
------------ ------------ ---------
$3,995 $5,419 $ 5,591
------------ ------------ ---------
------------ ------------ ---------
</TABLE>
3. PROPERTY UNDER CAPITAL LEASES
Property under capital leases consist of the following:
<TABLE>
<CAPTION>
PRO FORMA
DECEMBER 31, DECEMBER 30, MARCH 30, MARCH 30,
1994 1995 1996 1996
------------ ------------ --------- ---------
<S> <C> <C> <C> <C>
Warehouse and office facility.................... $2,023 $2,023 $ 2,023 $ 2,673
Construction in progress......................... -- -- -- 2,404
------------ ------------ --------- ---------
2,023 2,023 2,023 5,077
Less: accumulated amortization................... (33) (235) (284) --
------------ ------------ --------- ---------
$1,990 $1,788 $ 1,739 $ 5,077
------------ ------------ --------- ---------
------------ ------------ --------- ---------
</TABLE>
On June 14, 1994, the Company entered into a ten year lease with an
affiliate under common control for the Company's current distribution and office
facility (Note 4). The present value of the rental payments under the lease
exceed 90% of the fair market value of the leased property at the
F-11
<PAGE>
<PAGE>
SLEEPY'S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED APRIL 1, 1995 AND MARCH 30,
1996 IS UNAUDITED)
inception of the lease, qualifying the lease to be accounted for as a capital
lease. However, since the land value was greater than 25% of the total property
value, the portion of the rental payments attributable to land is treated as an
operating lease under Financial Accounting Standards No. 13, 'Accounting for
Leases' (Note 10). The portion attributable to the warehouse and office facility
was recorded at the fair value of such property at the inception of the lease.
The net present value of such rental payments approximated the cost basis of the
property. The Company is required to comply with certain financial covenants in
connection with a mortgage commitment received by the affiliate.
On , 1996, the Company terminated the existing lease and
entered into a new lease for the facility. The lease provides for a term of 13
years, with two five-year renewal options, as well as options to purchase the
facility and land at fair market value on each of the eighth and, assuming no
transfer gains taxes are payable in connection therewith (other than upon
exercise), each of the thirteenth, eighteenth and twenty-third anniversaries of
the date of the lease. In addition, on the fifth anniversary of the date of the
lease the Company has the right to make an election, in response to which the
affiliate must either sell the facility and land at fair market value or reduce
the then-current annual rental under the lease to the fair market rate thereof,
provided that the amount of such annual reduction shall not be greater than
$100,000. The lease also provides for the Company to occupy an additional 79,000
square feet upon completion of the buildout of such space by the lessor. The pro
forma balance sheet at March 30, 1996 reflects the new capital lease as though
it was recorded as of March 30, 1996. In accordance with SAB No. 48, the
recording of assets under the new capital lease was recorded at the cost basis
of the affiliate. The present value of the lease payments under the new lease
exceeded the cost basis by $613,000, which amount will be recorded as a capital
distribution.
No pro forma adjustments have been reflected in the statements of income
for the year ended December 30, 1995 and the three months ended March 30, 1996
since the effects of the lease were not material.
4. RELATED PARTY TRANSACTIONS
At December 31, 1994, December 30, 1995 and March 30, 1996, the Company was
owed $1,366,000, $1,243,000, $1,783,000 respectively, by the principal
shareholder of the Company. The receivable is unsecured, non-interest bearing
and has no established repayment terms.
Rent expense paid to the Company's principal stockholder for the Company's
former administrative and distribution facility aggregated $564,000 and $277,000
for the fiscal years ended January 1, 1994 and December 31, 1994. In October
1994, the Company relocated to its current facility which it leases from an
affiliated entity. Rent paid to the affiliate for the years ended December 31,
1994 and December 30, 1995 and for the three months ended April 1, 1995 and
March 30, 1996 was $225,000, $594,000, $135,000 and $162,000, respectively,
including amounts capitalized for the warehouse and office facility. In
connection with the relocation, the Company incurred a loss of $338,000 in 1994
from disposal of fixed assets located at the former facility.
At December 30, 1995, the Company had outstanding a $1,000,000 loan which
is due to an affiliate. The loan bears interest at 12% per annum. Interest
expense on this loan for the year ended December 30, 1995 and for the three
months ended April 1, 1995 and March 30, 1996 was approximately $80,000, $0 and
$30,000, respectively. As a result of certain provisions within the bank
agreement, which the affiliate has agreed to, this loan has been classified as
long term. The affiliate, which has no significant operations, is owned by the
Company's principal shareholder and his spouse.
The Company performed certain administrative services for M.J.R. Bedding
Company, Inc. ('M.J.R.') through February 1994. M.J.R. operated a single retail
location doing business as Sleepy's and was related to the Company through
common minority ownership. The Company charged M.J.R. for administrative
expenses incurred on its behalf as well as for the use of the Sleepy's
trademark. In February 1994, M.J.R's lease expired and M.J.R. ceased doing
business as 'Sleepy's'. The Company
F-12
<PAGE>
<PAGE>
SLEEPY'S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED APRIL 1, 1995 AND MARCH 30,
1996 IS UNAUDITED)
charged M.J.R. approximately $440,000 and $71,000 during the years ended January
1, 1994 and December 31, 1994, respectively which is unpaid and was fully
reserved in each of the respective periods. At each of December 30, 1995 and
March 30, 1996, a receivable of $511,000 and a reserve for uncollectible
receivable in the same amount remained on the books of the Company. On April 12,
1988, an action was commenced against the Company and its principal shareholder
(Note 10).
5. INTANGIBLE ASSETS
On February 5, 1993, Kleinsleep Products, Inc. (an unrelated third party),
which had previously filed for bankruptcy and closed all operations, auctioned
off its assets. Intangibles acquired at that auction are as follows:
<TABLE>
<CAPTION>
USEFUL DECEMBER 31, DECEMBER 30, MARCH 30,
LIVES 1994 1995 1996
--------------- ------------ ------------ ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Trademarks.............................. 40 years $ 748 $ 748 $ 748
Leases.................................. 17 to 94 months 302 302 302
Other................................... 10 to 20 years 19 19 69
------------ ------------ ---------
Intangible assets, at cost................................ 1,069 1,069 1,119
Accumulated amortization.................................. 209 252 263
------------ ------------ ---------
Intangible assets, net.................................... $ 860 $ 817 $ 856
------------ ------------ ---------
------------ ------------ ---------
</TABLE>
6. BANK CREDIT LINE
The Company has a $1,750,000 line of credit with a bank. The line is also
available for standby letters of credit up to an aggregate total of $750,000
with up to a one year duration. Borrowings under the line of credit bear
interest at the bank's commercial prime lending rate (8.5% at December 30, 1995)
plus .5% and are collateralized by the assets of the Company. Standby letters of
credit bear interest at 2% per annum. Additionally, all borrowings are
personally guaranteed by the Company's principal shareholder and his spouse,
SII, KSAC and 1-800. The line of credit includes limitations on loans to any
related parties based on a formula contained in the agreement. The agreement
contains certain financial covenants and restrictions which the Company is in
compliance with at December 30, 1995. At December 30, 1995 there were $370,000
of borrowings under the aforementioned line of credit. At December 31, 1994
there was $975,000 of borrowings under the prior years available line of credit
of $1,750,000.
On January 31, 1996 the line of credit was increased to $2,000,000 and the
line was extended to January 31, 1997. The interest rate on the line was reduced
to the bank's commercial prime lending rate (8.25% at March 30, 1996). As a
result of the refinancing the bank credit line was classified as long term at
December 30, 1995. The balance outstanding under the line of credit at March 30,
1996 was $800,000.
F-13
<PAGE>
<PAGE>
SLEEPY'S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED APRIL 1, 1995 AND MARCH 30,
1996 IS UNAUDITED)
7. OBLIGATIONS UNDER CAPITAL LEASE
Obligations under capital lease consists of:
<TABLE>
<CAPTION>
PRO FORMA
DECEMBER 31, DECEMBER 30, MARCH 30, MARCH 30,
1994 1995 1996 1996
------------ ------------ --------- ---------
<S> <C> <C> <C> <C>
Obligation under capital lease of warehouse and
office space (Note 3), with an annual aggregate
rental of $299,529 including interest at 8.5%
($750,396 and 8.0% at March 30, 1996 pro forma)
per annum. Secured by interest in distribution
and office facility............................ $2,005 $1,871 $ 1,835 $ 5,786
Other............................................ 174 70 44 44
------------ ------------ --------- ---------
2,179 1,941 1,879 5,830
Less current portion............................. 238 217 193 83
------------ ------------ --------- ---------
Long-term portion................................ $1,941 $1,724 $ 1,686 $ 5,747
------------ ------------ --------- ---------
------------ ------------ --------- ---------
</TABLE>
The following is a schedule by years of future minimum lease payments under
capital leases as of December 30, 1995:
<TABLE>
<CAPTION>
FISCAL YEAR ENDING (IN THOUSANDS)
- ------------------------------------------------------------------------------ --------------
<S> <C>
1996.................................................................... $ 300
1997.................................................................... 300
1998.................................................................... 300
1999.................................................................... 300
2000.................................................................... 300
Thereafter.............................................................. 1,255
-------
Total minimum lease payments............................................ 2,755
Less: amount representing interest...................................... 814
-------
Present value of net minimum lease payments............................. $1,941
-------
-------
</TABLE>
8. INCOME TAXES
With the consent of its principal shareholder, the Company elected to be
taxed as an S Corporation pursuant to the Internal Revenue Code. In connection
with this Offering, the Company will no longer be treated as an S corporation
effective with the Reorganization (Note 1(a)) and, accordingly, the Company will
be subject to Federal income tax. The pro forma taxes on income represent the
income taxes that would have been reported for Federal, State and local income
taxes had the Company accounted for its income taxes under FAS 109 as a C
Corporation. The effective rate utilized the year ended December 30, 1995 and
for three months ended March 30, 1996 was 40%.
The following summarizes the provision for pro forma income taxes:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 30, 1995
-----------------
<S> <C>
Current:
Federal........................................................................ $ 1,026
State and local................................................................ 302
-------
Pro forma provision for income taxes................................................ $ 1,328
-------
-------
</TABLE>
F-14
<PAGE>
<PAGE>
SLEEPY'S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED APRIL 1, 1995 AND MARCH 30,
1996 IS UNAUDITED)
The provision for income taxes on adjusted historical income differs from
the amounts computed by applying the applicable Federal statutory rates due to
the following:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 30, 1995
--------------------
<S> <C> <C>
Provision for Federal income taxes at the statutory rate.......................... $1,162 35.0%
State and local income taxes, net of Federal benefit.............................. 198 6.0
Other............................................................................. (32) (1.0)
-------- --------
Provision for income taxes........................................................ $1,328 40.0%
-------- --------
-------- --------
</TABLE>
Upon termination of S Corporation status, the Company will record a
deferred tax asset (approximately $428,000 at March 30, 1996). The deferred tax
asset results from the following temporary differences between financial and tax
reporting basis:
<TABLE>
<CAPTION>
MARCH 30, 1996
--------------
<S> <C>
Deferred tax asset:
Deferred rent...................................................................... $ 551,000
Other.............................................................................. 20,000
--------------
571,000
Less: Future book depreciation in excess of tax depreciation............................ (143,000)
--------------
Net deferred tax asset.................................................................. $ 428,000
--------------
--------------
</TABLE>
No valuation allowance has been provided since in the opinion of
management, the deferred tax asset will be fully utilized.
9. STATEMENTS OF CASH FLOW
Supplemental disclosure of cash flow information:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
----------------------
JANUARY 1, DECEMBER 31, DECEMBER 30, APRIL 1, MARCH 30,
1994 1994 1995 1995 1996
---------- ------------ ------------ --------- ---------
<S> <C> <C> <C> <C> <C>
Cash paid during the period for
interest............................ $ 11 $ 59 $157 $29 $54
--- --- ------ --- ---
--- --- ------ --- ---
</TABLE>
10. COMMITMENTS AND CONTINGENCIES
(A) LEASES
The Company leases land (Note 3), retail showrooms and equipment under
various noncancellable operating leases. The leases expire at various times
through the year 2013, contain option clauses and are subject to escalation
clauses for taxes and expenses. Future minimum rentals required as of December
30, 1995 under all non-cancelable operating leases (exclusive of renewals) are
as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED (IN THOUSANDS)
- -------------------------------------------------------------------------------------------------- --------------
<S> <C>
1996......................................................................................... $ 6,875
1997......................................................................................... 6,384
1998......................................................................................... 5,944
1999......................................................................................... 5,119
2000......................................................................................... 4,434
Thereafter................................................................................... 17,897
--------------
Total................................................................................... $ 46,653
--------------
--------------
</TABLE>
F-15
<PAGE>
<PAGE>
SLEEPY'S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED APRIL 1, 1995 AND MARCH 30,
1996 IS UNAUDITED)
Rent expense was approximately $5,392,000, $6,040,000 and $6,814,000 for
the three years in the period ended December 30, 1995, and $1,577,000 and
$2,001,000 for the three months ended April 1, 1995 and March 30, 1996,
respectively, including amounts paid to the Company's stockholder (Note 4).
(B) LETTERS OF CREDIT
The Company was liable under standby letters of credit amounting to
approximately $444,000, $446,000 and $442,000 at December 31, 1994, December 30,
1995 and March 30, 1996 which are principally used as collateral for rental
deposits.
(C) LITIGATION
In April 1988, a lawsuit was filed against Hapat Bedding Corp. ('Hapat'),
Sleepy's and the principal shareholder of Sleepy's in the Supreme Court of the
State of New York, County of New York. In July 1988, a similar lawsuit was filed
against M.J.R. Bedding Co., Inc. ('M.J.R.'), Sleepy's and the principal
stockholder of Sleepy's in the same Court. Hapat and M.J.R. were corporations
with each operating a store under the name 'Sleepy's' and receiving various
services from the Company commencing in 1979. At the time of the commencement of
the actions, the plaintiffs sought (i) in the Hapat action, $1,000,000 in
compensatory damages and $2,000,000 in punitive damages, and (ii) in the M.J.R.
action, $2,560,000 in compensatory damages and $1,000,000 in punitive damages,
in each case for damages allegedly resulting from excessive fees charged by and
payments to the Company in connection with the Company's provision of these
services. The Company continues to vigorously defend the actions.
The principal shareholder has agreed prior to effectiveness of this
Offering to indemnify and hold harmless the Company against any net judgement
amount rendered against the Company or settlement in the actions, in excess of
the amount currently reserved by the Company in connection with the actions,
including costs and expenses incurred after the effective date of this Offering,
following all appeals. In light of this indemnification arrangement, the Company
does not believe that the actions will have a material adverse effect on the
financial position or liquidity of the Company. Any settlement paid by the
stockholder on behalf of the Company will be recorded as an expense to
operations with a corresponding contribution to additional paid in capital in
accordance with SAB No. 79.
As of December 30, 1995, the Company is involved in various other legal
actions none of which management believes will have a material adverse effect on
the Company's consolidated financial statements.
(D) CONSIGNMENT INVENTORY
At December 31, 1994, December 30, 1995 and March 30, 1996, the Company had
approximately $797,000, $697,000 and $258,000, respectively, of consignment
inventory from certain vendors located throughout its store locations. There are
no limits as to the level of goods the Company may hold under the consignment
arrangements.
(E) EMPLOYMENT AGREEMENTS
The Company has employment agreements with two key employees expiring
through April 1999. The agreements include severance of six months to one year's
salary upon termination with increasing amounts if termination occurs under
certain conditions.
F-16
<PAGE>
<PAGE>
SLEEPY'S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED APRIL 1, 1995 AND MARCH 30,
1996 IS UNAUDITED)
Total future minimum commitments under these employment agreements at
December 30, 1995 are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDING
- --------------------------------------------------------------------------------
<S> <C>
1996...................................................................... $ 266,666
1997...................................................................... 620,000
1998...................................................................... 494,674
1999...................................................................... 80,660
----------
$1,462,000
----------
----------
</TABLE>
(F) EMPLOYEE BONUS PLAN
The Company has established a two-year executive officer bonus plan
pursuant to which the Company may pay bonuses to its current Chief Executive
Officer and Executive Vice President in an aggregate amount equal to 15% of the
excess of (i) the Company's annual pre-tax income in a given year over (ii) a
specified level (the 'Specified Level'). No bonus payments will be made in a
given year if the Company's annual pre-tax income does not exceed the Specified
Level in that year. Commencing January 1, 1998, the payment of bonuses for
future years will be at the discretion of the compensation committee of the
Board of Directors.
11. SUBSEQUENT EVENTS
(A) PUBLIC OFFERING
The Company has signed an engagement letter with an underwriter in
connection with a proposed public offering of 1,375,000 shares of the Company's
common stock.
(B) PREFERRED STOCK
In June 1996, the Company authorized 5,000,000 shares of Preferred Stock,
$.01 par value per share. The rights, preferences and limitations of the
Preferred Stock may be designated by the Company's Board of Directors at any
time.
(C) STOCK OPTION PLAN
In June 1996, the Board of Directors adopted and the principal shareholder
of the Company approved the 1996 Stock Option Plan (the 'Stock Option Plan').
The Stock Option Plan provides for the grant, at the discretion of the Board of
Directors, of (i) options that are intended to qualify as incentive stock
options ('Incentive Stock Options') within the meaning of section 422A of the
Code to certain employees and directors, and (ii) options not intended to so
qualify ('Nonqualified Stock Option') to employees, directors and consultants.
The total number of shares of Common Stock for which options may be granted
under the Stock Option Plan is 400,000 shares.
The Stock Option Plan will be administered by the compensation committee of
the Board of Directors, which determines the terms of options exercised,
including the exercise price, the number of shares subject to the option and
terms and conditions of exercise. No option granted under the Stock Option Plan
is transferable by the optionee other than by will or the laws of descent and
distribution and each option is exercisable during the lifetime of the optionee
only by such optionee.
The exercise price of all stock options under the Stock Option Plan must be
at least equal to the fair market value of such shares on the date of grant.
With respect to any participant who owns stock possessing more than 10% of the
voting rights of the Company's outstanding common stock, the exercise price of
any Incentive Stock Option must be not less than 110% of the fair market value
on the
F-17
<PAGE>
<PAGE>
SLEEPY'S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED APRIL 1, 1995 AND MARCH 30,
1996 IS UNAUDITED)
date of grant. The term of each option granted pursuant to the Stock Option Plan
may be established by the compensation committee of the Board of Directors, in
its sole discretion; provided, however, that the maximum term of each Incentive
Stock Option granted pursuant to the Stock Option Plan is ten years. With
respect to any Incentive Stock Option granted to a participant who owns stock
possessing more than 10% of the total combined voting power of all classes of
the Company's outstanding common stock, the maximum term is five years. Options
shall become exercisable at such times and in such installments as the
compensation committee of the Board of Directors shall provide in the terms of
each individual option.
As of July 15, 1996, options to purchase 232,000 shares of Common Stock,
each having an exercise price per share equal to the price per share in the
Offering, have been granted under the Stock Option Plan, none of which options
have been exercised.
In addition, the Stock Option Plan provides that each non-employee director
of the Company receives formula grants of stock options as described below.
Prior to the Offering, each non-employee director of the Company will receive an
award under the Stock Option Plan of ten-year options to purchase 1,200 shares
of common stock at an exercise price per share equal to the price per share in
the Offering, exercisable upon the effective date of the Offering. Following
this offering, each person who served as a non-employee director of the Company
during all or a part of a fiscal year (the 'Fiscal Year') of the Company will
receive on the immediately following January 31 (the 'Award Date'), as
compensation for services rendered in that Fiscal Year, an award under the Stock
Option Plan of immediately exercisable ten-year options to purchase 1,200 shares
of common stock (a 'Full Award') at an exercise price equal to the fair market
value of the common stock on the Award Date; provided that each non-employee
director who served during less than all of the Fiscal Year will receive an
award equal to one-twelfth of a Full Award for each month or portion thereof
that he or she served as a non-employee director of the Company. As formula
grants under the Stock Option Plan, the foregoing grants of options to
non-employee directors are not subject to the determinations of the Board of
Directors or the compensation committee.
(D) GRANTOR RETAINED ANNUITY TRUSTS
In June 1996, the principal shareholder transferred ownership interests in
each of Sleepy's, KSAC, SII, 1-800 and certain shell corporations to three
grantor retained annuity trusts. Prior to effectiveness, the ownership interests
in all such corporations, except Sleepy's, will be contributed to Sleepy's by
these trusts as part of the Reorganization. The trusts currently, and upon the
Reorganization will, own 348,000 shares of the Company. Children of the
principal shareholder are beneficiaries of the trusts, with the principal
shareholder acting as the sole trustee of each trust.
F-18
<PAGE>
<PAGE>
[PHOTO OF A SLEEPY'S SHOWROOM]
[PHOTO OF TELEMARKETING CENTER, BETHPAGE, N.Y.]
[PHOTO OF HEADQUARTERS, BETHPAGE, N.Y.]
[PHOTO (OUTDOOR) OF DISTRIBUTION CENTER, BETHPAGE, N.Y.]
[PHOTO (INDOOR) OF DISTRIBUTION CENTER, BETHPAGE, N.Y.]
<PAGE>
<PAGE>
_____________________________ _____________________________
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED IN
CONNECTION WITH THIS OFFERING TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE
COMMON STOCK OFFERED BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS UNLAWFUL, OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANYONE TO WHOM IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.......................................................................................................... 3
Risk Factors................................................................................................................ 8
The Company................................................................................................................. 12
Reorganization of the Company and Change in Tax Status...................................................................... 12
Use of Proceeds............................................................................................................. 14
Capitalization.............................................................................................................. 15
Dividend Policy............................................................................................................. 15
Dilution.................................................................................................................... 16
Selected Consolidated Financial Data........................................................................................ 17
Management's Discussion and Analysis of Financial Condition and Results of Operations....................................... 19
Business.................................................................................................................... 25
Management.................................................................................................................. 35
Certain Transactions........................................................................................................ 39
Principal Shareholders...................................................................................................... 41
Description of Capital Stock................................................................................................ 42
Shares Eligible for Future Sale............................................................................................. 44
Underwriting................................................................................................................ 45
Legal Matters............................................................................................................... 46
Experts..................................................................................................................... 46
Additional Information...................................................................................................... 47
Index to Financial Statements............................................................................................... F-1
</TABLE>
------------------------
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS
PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK OFFERED
HEREBY, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION
OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT
TO THEIR ALLOTMENTS OR SUBSCRIPTIONS.
[LOGO]
1,375,000 SHARES
OF
COMMON STOCK
---------------------------------
PROSPECTUS
---------------------------------
GERARD KLAUER MATTISON & CO., LLC
, 1996
_____________________________ _____________________________
<PAGE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 722 of the New York Business Corporation Law ('NYBCL') permits, in
general, a New York corporation to indemnify any person made, or threatened to
be made, a party to an action or proceeding by reason of the fact that he or she
was a director or officer of the corporation, or served another entity in any
capacity at the request of the corporation, against any judgment, fines, amounts
paid in settlement and reasonable expenses, including attorney's fees actually
and necessarily incurred as a result of such action or proceeding, or any appeal
therein, if such person acted in good faith, for a purpose he or she reasonably
believed to be in, or, in the case of service for another entity, not opposed
to, the best interests of the corporation and, in criminal actions or
proceedings, in addition had no reasonable cause to believe that his or her
conduct was unlawful. Section 723 of the NYBCL permits the corporation to pay in
advance of a final disposition of such action or proceeding the expenses
incurred in defending such action or proceeding upon receipt of an undertaking
by or on behalf of the director or officer to repay such amount as, and to the
extent, required by statute. Section 721 of the NYBCL provides that
indemnification and advancement of expense provisions contained in the NYBCL
shall not be deemed exclusive of any rights to which a director or officer
seeking indemnification or advancement of expenses may be entitled, provided no
indemnification may be made on behalf of any director or officer if a judgment
or other final adjudication adverse to the director or officer establishes that
his or her acts were committed in bad faith or were the result of active or
deliberate dishonesty and were material to the cause of action so adjudicated,
or that he or she personally gained in fact a financial profit or other
advantage to which he or she was not legally entitled.
Article Seventh of the Company's Certificate of Incorporation provides, in
general, that the Company may indemnify, to the fullest extent permitted by
applicable law, every person threatened to be made a party to any action, suit
or proceeding by reason of the fact that such person is or was an officer or
director or was serving at the request of the Company as a director, officer,
employee, agent or trustee of another corporation, business, partnership, joint
venture, trust, employee benefit plan, or other enterprise, against expenses,
judgments, fines and amounts paid in settlement in connection with such suit or
proceeding. Article Seventh of the Certificate of Incorporation also provides
that the Company may indemnify and advance expenses to those persons as
authorized by resolutions of a majority of the Board of Directors or
shareholders, agreement, directors' or officers' liability insurance policies,
or any other form of indemnification agreement.
In accordance with that provision of the Certificate of Incorporation, the
Company shall indemnify any officer or director (including officers and
directors serving another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise in any capacity at the Company's
request) made, or threatened to be made, a party to an action or proceeding
(whether civil, criminal, administrative or investigative) by reason of the fact
that he or she was serving in any of those capacities against judgments, fines,
amounts paid in settlement and reasonable expenses (including attorney's fees)
incurred as a result of such action or proceeding. Indemnification would not be
available under Article Seventh of the Certificate of Incorporation if a
judgment or other final adjudication adverse to such director or officer
establishes that (i) his or her acts were committed in bad faith or were the
result of active and deliberate dishonesty and, in either case, were material to
the cause of action so adjudicated, or (ii) he or she personally gained in fact
a financial profit or other advantage to which he or she was not legally
entitled. Article Seventh of the Certificate of Incorporation further stipulates
that the rights granted therein are contractual in nature.
The Underwriting Agreement contains, among other things, provisions whereby
the Underwriter agrees to indemnify the Company, each officer and director of
the Company who has signed the Registration Statement and each person who
controls the Company within the meaning of Section 15 of the Securities Act
against any losses, liabilities, claims or damages arising out of alleged untrue
statements or alleged omissions of material facts with respect to information
furnished to the Company by the Underwriter for use in the Registration
Statement or Prospectus. See Item 28 'Undertakings.'
II-1
<PAGE>
<PAGE>
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the various expenses (other than selling
commissions and other fees paid to the underwriter) which will be paid by the
Registrant in connection with the issuance and distribution of the securities
being registered. With the exception of the registration fee and the NASD filing
fee, all amounts shown are estimates.
<TABLE>
<S> <C>
Registration fee.................................................................. $ 6,544
NASD filing fee................................................................... 2,398
Nasdaq National Market listing expenses........................................... 25,000
Blue sky fees and expenses (including legal and filing fees)...................... 10,000
Printing expenses (other than stock certificates)................................. 90,000
Printing and engraving of stock certificates...................................... 5,000
Legal fees and expenses (other than Blue Sky)..................................... 165,000
Accounting fees and expenses...................................................... 100,000
Transfer Agent and Registrar fees and expenses.................................... 5,000
Miscellaneous expenses............................................................ 33,558
--------
Total........................................................................ 442,500
--------
--------
</TABLE>
- ------------
* To be filed by amendment.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
During the last three years, the Company has made no sales of unregistered
securities.
ITEM 27. EXHIBITS.
<TABLE>
<CAPTION>
NUMBER DESCRIPTION OF EXHIBIT
- ------ ----------------------------------------------------------------------------------------------------------
<C> <S>
1.1 -- Form of Underwriting Agreement.
3.1* -- Restated Certificate of Incorporation of the Company.
3.2 -- By-Laws of the Company.
4.1 -- Specimen Certificate of the Company's Common Stock.
4.2 -- Form of Representative's Warrant Agreement.
5.1** -- Opinion of Parker Chapin Flattau & Klimpl, LLP, counsel to the Company.
10.1* -- Form of Employment Agreement between the Company and Harry Acker.
10.2* -- Employment Agreement between the Company and Howard Roeder.
10.3 -- 1996 Stock Option Plan of the Company.
10.4 -- Executive Bonus Plan of the Company.
10.5 -- Form of Lease Agreement between the Company and BDC Realty Corp.
10.6 -- Form of Indemnification Agreement between the Company and Harry Acker.
10.7 -- Form of Escrow Agreement among the Company, Harry Acker and escrow agent.
10.8* -- Note of the Company relating to its bank working capital facility.
10.9 -- Form of Shareholder Distribution and Escrow Agreement among the Company, Harry Acker and escrow agent.
22.1 -- List of Subsidiaries.
23.1 -- Consent of BDO Seidman, LLP.
23.2** -- Consent of Parker Chapin Flattau & Klimpl, LLP, contained in Exhibit 5.1.
24.1* -- Power of Attorney.
</TABLE>
- ------------
* Previously filed.
** To be filed by amendment.
II-2
<PAGE>
<PAGE>
ITEM 28. UNDERTAKINGS.
The undersigned Company hereby undertakes:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new Registration Statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(3) To provide to the underwriter at the closing specified in the
underwriting agreements, certificates in such denominations and registered
in such names as required by the underwriter to permit prompt delivery to
each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Company of expenses incurred or
paid by a director, officer or controlling person of the Company in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-3
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned thereunto duly authorized, in the City of New York, State of New
York, on the 15th day of July 1996.
SLEEPY'S, INC.
By: /S/ HARRY ACKER
...................................
HARRY ACKER
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement was signed by the following persons in the capacities and
on the dates stated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ -------------------------------------------- -------------------
<C> <S> <C>
/S/ HARRY ACKER Chairman of the Board, Chief Executive July 15, 1996
......................................... Officer and Director
HARRY ACKER
* Chief Operating Officer and Director July 15, 1996
.........................................
DAVID ACKER
* Executive Vice President and Director July 15, 1996
.........................................
A.J. ACKER
* Vice President of Finance and Chief July 15, 1996
......................................... Financial Officer (principal financial and
JAY BOROFSKY accounting officer)
*By: /S/ HARRY ACKER
.........................................
HARRY ACKER
ATTORNEY-IN-FACT
</TABLE>
II-4
<PAGE>
<PAGE>
[THE FOLLOWING IS THE FORM OF OPINION WE WILL BE IN A POSITION TO ISSUE UPON THE
COMPLETION OF THE EVENTS DESCRIBED IN NOTE 1(a).]
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Sleepy's Inc.
The audits referred to in our report to Sleepy's Inc., dated March 7, 1996
(except for Notes 1(a), 1(h), 3, 7, 10(c) and 11 which are dated
_______________, 1996), which is contained in the Prospectus constituting part
of this Registration Statement included the audits of the consolidated schedule
listed in the accompanying index for each of the three years in the period ended
December 30, 1995. This consolidated financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this consolidated financial statement schedule based upon our audits.
In our opinion, the consolidated schedule presents fairly, in all material
respects, the information set forth therein.
BDO Seidman, LLP
March 7, 1996
II-5
<PAGE>
<PAGE>
SCHEDULE II
CONSOLIDATED FINANCIAL STATEMENT SCHEDULE
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN C-ADDITIONS
COLUMN B- ----------------------- COLUMN E-
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER COLUMN D- END OF
COLUMN A - DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS(1) PERIOD
- ---------------------------------------------------- ------------- ---------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C>
For the year ended January 1, 1994
Allowance for uncollectible balances.............. $ 0 $440 -- -- $ 440
For the year ended December 31, 1994
Allowance for uncollectible balances.............. $ 440 $ 71 -- -- $ 511
For the year ended December 30, 1995
Allowance for uncollectible balances.............. $ 511 -- -- -- $ 511
</TABLE>
- ------------
(1) Write-offs, net of recoveries.
S-1
STATEMENT OF DIFFERENCES
The section mark symbol shall be expressed as...... ss.
The trademark symbol shall be expressed as......... TM
<PAGE>
<PAGE>
1,375,000 SHARES
SLEEPY'S, INC.
COMMON STOCK
UNDERWRITING AGREEMENT
, 1996
GERARD KLAUER MATTISON & CO., LLC
As Representative of the several Underwriters
c/o Gerard Klauer Mattison & Co., LLC
529 Fifth Avenue
New York, New York 10017
Ladies and Gentlemen:
Sleepy's, Inc., a New York corporation (the 'Company'), proposes to sell an
aggregate of 1,375,000 shares (the 'Firm Shares') of the Company's Common Stock,
par value $0.01 per share (the 'Common Stock'), to you and to the other
underwriters named in Schedule I (collectively, the 'Underwriters'), for whom
Gerard Klauer Mattison & Co., LLC, a New York limited liability company ('GKM'),
is acting as representative (the 'Representative'). The Company has also agreed
to grant to you and the other Underwriters an option (the 'Option') to purchase
up to an additional 206,250 shares of Common Stock (the 'Option Shares') on the
terms and for the purposes set forth in Section 1(b). The Firm Shares and Option
Shares are hereinafter collectively referred to as the 'Shares.' The Company
also proposes to issue to you warrants (the 'Representative's Warrants') to
purchase an aggregate of 137,500 shares of Common Stock, pursuant to the Warrant
Agreement, dated , 1996, by and between the Company and the
Representative (the 'Representative's Warrant Agreement'). The shares of stock
issuable upon the exercise of the Representative's Warrants are hereinafter
referred to as the 'Warrant Shares.' The Representative's Warrants, the Warrant
Shares and Shares are hereinafter collectively referred to as the 'Securities.'
The initial public offering price per share for the Shares and the purchase
price per share for the Shares to be paid by the several Underwriters shall be
agreed upon by the Company and the Representative, acting on behalf of the
several Underwriters, and such agreement shall be set forth in a separate
written instrument substantially in the form of Exhibit A hereto (the 'Price
Determination Agreement'). The Price Determination Agreement may take the form
of an exchange of any standard form of written telecommunication between the
Company and the Representative and shall specify such applicable information as
is indicated in Exhibit A hereto. The offering of the Shares shall be governed
by this Agreement, as supplemented by the Price Determination Agreement. From
and after the date of the execution and delivery of the Price Determination
Agreement, this Agreement shall be deemed to incorporate, and, unless the
context otherwise indicates, all references contained herein to 'this Agreement'
and to the phrase 'herein' shall be deemed to include, the Price Determination
Agreement.
The Company confirms as follows its agreements with the Representative and
the several other Underwriters.
1. Agreement to Sell and Purchase.
(a) On the basis of the representations, warranties and agreements of the
Company herein contained and subject to all the terms and conditions of this
Agreement, (i) the Company agrees to sell to the several Underwriters and (ii)
each of the Underwriters, severally and not jointly, agrees to purchase from the
Company, at the purchase price per share for the Firm Shares to be agreed upon
by the Company and the Representative, in accordance with Section 1(c) hereof
and set forth in the Price Determination Agreement, the number of Firm Shares
set forth opposite the name of such Underwriter in Schedule I, plus such
additional number of Firm Shares which such Underwriter may become
<PAGE>
<PAGE>
obligated to purchase pursuant to Section 8 hereof. Schedule I may be attached
to the Price Determination Agreement.(1)
(b) Subject to all the terms and conditions of this Agreement, the Company
grants the Option to the several Underwriters to purchase, severally and not
jointly, up to 206,250 Option Shares from the Company at the same price per
share as the Underwriters shall pay for the Firm Shares. The Option may be
exercised only to cover over-allotments in the sale of the Firm Shares by the
Underwriters and may be exercised in whole or in part at any time (but not more
than once) on or before the 45th day after the date of this Agreement (or, if
the Company has elected to rely on Rule 430A, on or before the 45th day after
the date of the Price Determination Agreement), upon written or telegraphic
notice (the 'Option Shares Notice') by the Representative to the Company no
later than 12:00 noon, New York City time, at least two and no more than five
business days before the date specified for closing in the Option Shares Notice
(the 'Option Closing Date') setting forth the aggregate number of Option Shares
to be purchased and the time and date for such purchase. On the Option Closing
Date, the Company shall issue and sell to the Underwriters the number of Option
Shares set forth in the Option Shares Notice, and each Underwriter shall
purchase such percentage of the Option Shares as is equal to the percentage of
Firm Shares that such Underwriter is purchasing, as adjusted by the
Representative in such manner as it deems advisable to avoid fractional shares.
(c) The initial public offering price per share for the Firm Shares and the
purchase price per share for the Firm Shares to be paid by the several
Underwriters shall be agreed upon and set forth in the Price Determination
Agreement. In the event such price has not been agreed upon and the Price
Determination Agreement has not been executed by the close of business on the
fourteenth business day following the date on which the Registration Statement
(as hereinafter defined) becomes effective, this Agreement shall terminate
forthwith, without liability of any party to any other party except that Section
6 shall remain in effect.
2. Delivery and Payment. Delivery of the Firm Shares shall be made to the
Representative for the accounts of the Underwriters against payment of the
purchase price by certified or official bank checks payable in New York Clearing
House (next-day) funds to the order of the Company at the offices of Bear,
Stearns Securities Corp., 1 Metrotech Center No., Brooklyn, New York, as agent
for the Representative, or such other place as the Company and the
Representative shall agree to in writing. Such payment shall be made at 10:00
a.m., New York City time, on the third business day (the fourth business day,
should the offering be priced after 4:30 PM, EST/EDT) after the date on which
the first bona fide offering of the Shares to the public is made by the
Underwriters or at such time on such other date, not later than ten business
days after such date, as may be agreed upon by the Company and the
Representative (such date is hereinafter referred to as the 'Closing Date').
To the extent the Option is exercised, delivery of the Option Shares
against payment by the Underwriters (in the manner specified above) shall take
place at the offices specified above for the closing, at the time and date
(which may be the Closing Date) specified in the Option Shares Notice.
On the Closing Date, the Company shall issue to the Representative the
Representative's Warrants, which shall entitle the holders thereof to purchase
an aggregate of 137,500 shares of Common Stock. The Representative's Warrants
shall be exercisable for a period of four years commencing one year from the
effective date of the Registration Statement at an exercise price equal to 120%
of the initial public offering price of the Firm Shares. The Representative's
Warrant Agreement and form of warrant certificate shall be substantially in the
form filed as Exhibit to the Registration Statement.(2)
Certificates evidencing the Shares and Representative's Warrants shall be
in definitive form and shall be registered in such names and in such
denominations as the Representative shall request at least two business days
prior to the Closing Date or the Option Closing Date, as the case may be, by
written notice to the Company. For the purpose of expediting the checking and
packaging of certificates for the
- ------------
(1) This agreement assumes that the Company will elect to rely on Rule 430A.
Should the Company not elect to rely on Rule 430A, appropriate modifications
should be made.
(2) The Company's Form S-1 filed with the Commission on June 7, 1996 does not
include the Representative's Warrant as a separate exhibit.
2
<PAGE>
<PAGE>
Shares and Representative's Warrants, the Company agrees to make such
certificates available for inspection at least 24 hours prior to the Closing
Date or the Option Closing Date, as the case may be.
The cost of original issue tax stamps, if any, in connection with the
issuance and delivery of the Registered Securities by the Company to the
respective Underwriters shall be borne by the Company. The Company shall pay,
and hold each Underwriter and any subsequent holder of the Registered Securities
harmless from, any and all liabilities with respect to or resulting from any
failure or delay in paying Federal and state stamp and other transfer taxes, if
any, which may be payable or determined to be payable in connection with the
original issuance or sale to such Underwriter of the Registered Securities.
3. Representations and Warranties of the Company. Each of the Company and
Harry Acker, jointly and severally, represents and warrants to, and covenants
with, each Underwriter that:
(a) A registration statement (Registration No. 333- ) on Form S-1
relating to the Shares, including a preliminary prospectus and such
amendments to such registration statement as may have been required to the
date of this Agreement, has been prepared by the Company under the
provisions of the Securities Act of 1933, as amended (the 'Act'), and the
rules and regulations (collectively referred to as the 'Rules and
Regulations') of the Securities and Exchange Commission (the 'Commission')
thereunder, and has been filed with the Commission. The term 'preliminary
prospectus' as used herein means a preliminary prospectus as contemplated
by Rule 430 or Rule 430A ('Rule 430A') of the Rules and Regulations
included at any time as part of the registration statement. Copies of such
registration statement and amendments and of each related preliminary
prospectus have been delivered to the Representative. The term
'Registration Statement' means the registration statement as amended at the
time it becomes or became effective (the 'Effective Date'), including
financial statements and all exhibits and any information deemed to be
included by Rule 430A or Rule 434 of the Rules and Regulations. If the
Company files a registration statement to register a portion of the Shares
and relies on Rule 462(b) of the Rules and Regulations for such
registration statement to become effective upon filing with the Commission
(the 'Rule 462 Registration Statement'), then any reference to the
'Registration Statement' shall be deemed to include the Rule 462
Registration Statement, as amended from time to time. The term 'Prospectus'
means the prospectus as first filed with the Commission pursuant to Rule
424(b) of the Rules and Regulations or, if no such filing is required, the
form of final prospectus included in the Registration Statement at the
Effective Date.
(b) On the Effective Date, the date the Prospectus is first filed with
the Commission pursuant to Rule 424(b) (if required), at all times
subsequent to and including the Closing Date and, if later, the Option
Closing Date and when any post-effective amendment to the Registration
Statement becomes effective or any amendment or supplement to the
Prospectus is filed with the Commission, the Registration Statement and the
Prospectus (as amended or as supplemented if the Company shall have filed
with the Commission any amendment or supplement thereto), including the
financial statements included in the Prospectus, did or will comply with
all applicable provisions of the Act and the Rules and Regulations and will
contain all statements required to be stated therein in accordance with the
Act and the Rules and Regulations. On the Effective Date and when any
post-effective amendment to the Registration Statement becomes effective,
no part of the Registration Statement or any such amendment did or will
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary in order to make the
statements therein not misleading, in light of the circumstances under
which they were made. At the Effective Date, the date the Prospectus or any
amendment or supplement to the Prospectus is filed with the Commission and
at the Closing Date and, if later, the Option Closing Date, the Prospectus
did not or will not contain any untrue statement of a material fact or omit
to state a material fact necessary to make the statements therein not
misleading, in light of the circumstances under which they were made. The
foregoing representations and warranties in this Section 3(b) do not apply
to any statements or omissions made in reliance on and in conformity with
information relating to any Underwriter furnished in writing to the Company
by the Representative specifically for inclusion in the Registration
Statement or Prospectus or any amendment or supplement thereto. For all
purposes of this Agreement, the amounts of the selling
3
<PAGE>
<PAGE>
concession and reallowance set forth in the Prospectus constitute the only
information relating to any Underwriter furnished in writing to the Company
by the Representative specifically for inclusion in the preliminary
prospectus, the Registration Statement or the Prospectus. The Company has
not distributed any offering material in connection with the offering or
sale of the Shares other than the Registration Statement, the preliminary
prospectus, the Prospectus or any other materials, if any, permitted by the
Act.
(c) The only subsidiaries (as defined in the Rules and Regulations) of
the Company are the subsidiaries listed on Exhibit 21 to the Registration
Statement (the 'Subsidiaries'). The Company and each of its Subsidiaries
is, and at the Closing Date will be, a corporation duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation. The Company and each of its Subsidiaries has, and at the
Closing Date will have, full power and authority to conduct all the
activities conducted by it, to own or lease all the assets owned or leased
by it and to conduct its business as described in the Registration
Statement and the Prospectus. The Company and each of its Subsidiaries is,
and at the Closing Date will be, duly licensed or qualified to do business
in and in good standing as a foreign corporation in all jurisdictions in
which the nature of the activities conducted by it or the character of the
assets owned or leased by it makes such licensing or qualification
necessary. All of the outstanding shares of capital stock of the
Subsidiaries have been duly authorized and validly issued, and are fully
paid and non-assessable and are owned by the Company free and clear of all
liens, encumbrances and claims whatsoever. Except for the stock of the
Subsidiaries and as disclosed in the Registration Statement, the Company
does not own, and at the Closing Date will not own, directly or indirectly,
any shares of stock or any other equity or long-term debt securities of any
corporation or have any equity interest in any firm, partnership, joint
venture, association or other entity. Complete and correct copies of the
certificate of incorporation and of the by-laws of the Company and each of
its Subsidiaries and all amendments thereto have been delivered to the
Representative, and no changes therein will be made subsequent to the date
hereof and prior to the Closing Date or, if later, the Option Closing Date.
(d) The outstanding shares of Common Stock have been, and the
Securities to be issued and sold by the Company upon such issuance will be,
duly authorized, validly issued, fully paid and nonassessable and will not
be subject to any preemptive, first refusal or similar right. The
description of the Common Stock in the Registration Statement and the
Prospectus is now, and at the Closing Date will be, complete and accurate
in all respects and the 29,000-for-1 split of the Common Stock described in
the Prospectus has become effective under the laws of New York. Except as
set forth in the Prospectus, the Company does not have outstanding, and at
the Closing Date will not have outstanding, any options to purchase, or any
rights or warrants to subscribe for, or any securities or obligations
convertible into, or any contracts or commitments to issue or sell, any
shares of Common Stock, any shares of capital stock of any Subsidiary or
any such warrants, convertible securities or obligations. Upon the issuance
and delivery pursuant to the terms of this Agreement, the Underwriters will
acquire good and marketable title to the Securities, free and clear of any
lien, charge, claim, encumbrance, pledge, security interest, defect or
other restriction or equity of any kind whatsoever.
(e) The financial statements and schedules included in the
Registration Statement or the Prospectus present fairly the consolidated
financial condition of the Company as of the respective dates thereof and
the consolidated results of operations and cash flows of the Company for
the respective periods covered thereby, all in conformity with generally
accepted accounting principles applied on a consistent basis throughout the
entire period involved, except as otherwise disclosed in the Prospectus.
The pro forma financial statements and other pro forma financial
information included in the Registration Statement or the Prospectus (i)
present fairly in all material respects the information shown therein, (ii)
have been prepared in accordance with the Commission's rules and guidelines
with respect to pro forma financial statements and (iii) have been properly
computed on the bases described therein. The assumptions used in the
preparation of the pro forma financial statements and other pro forma
financial information included in the Registration Statement or the
Prospectus are reasonable and the adjustments used therein are appropriate
to give effect to the transactions or circumstances referred to therein. No
other financial statements or schedules of the Company are required by the
Act or the Rules and Regulations to be included in
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the Registration Statement or the Prospectus. BDO Seidman, LLP (the
'Accountants'), which have reported on such financial statements and
schedules, are independent accoun-tants with respect to the Company as
required by the Act and the Rules and Regulations. The statements included
in the Registration Statement with respect to the Accountants pursuant to
Rule 509 of Regulation S-K of the Rules and Regulations are true and
correct in all material respects.
(f) The Company maintains a system of internal accounting control
sufficient to provide reasonable assurance that (i) transactions are
executed in accordance with management's general or specific authorization;
(ii) transactions are recorded as necessary to permit preparation of
financial statements in conformity with generally accepted accounting
principles and to maintain accountability for assets; (iii) access to
assets is permitted only in accordance with management's general or
specific authorization; and (iv) the recorded accountability for assets is
compared with existing assets at reasonable intervals and appropriate
action is taken with respect to any differences.
(g) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus and prior to the
Closing Date, except as set forth in or contemplated by the Registration
Statement and the Prospectus, (i) there has not been and will not have been
any change in the capitalization of the Company, or in the business,
properties, business prospects, condition (financial or otherwise) or
results of operations of the Company and its Subsidiaries, arising for any
reason whatsoever, (ii) neither the Company nor any of its Subsidiaries has
incurred, nor will it incur any material liabilities or obligations, direct
or contingent, nor has it entered into, nor will it enter into any material
transactions other than pursuant to this Agreement and the transactions
referred to herein, and (iii) the Company has not and will not have paid or
declared any dividends or other distributions of any kind on any class of
its capital stock.
(h) The Company is not an 'investment company' or an 'affiliated
person' of, or 'promoter' or 'principal underwriter' for, an 'investment
company,' as such terms are defined in the Investment Company Act of 1940,
as amended.
(i) Except as set forth in the Registration Statement and the
Prospectus, there are no actions, suits or proceedings pending or
threatened against or affecting the Company or any of its Subsidiaries or
any of their respective officers in their capacity as such, before or by
any Federal or state court, commission, regulatory body, administrative
agency or other governmental body, domestic or foreign, wherein an
unfavorable ruling, decision or finding might materially and adversely
affect the Company or any of its Subsidiaries or the general affairs,
business, business prospects, earnings, position, value, properties,
management, condition (financial or otherwise), operations or results of
operations of the Company and any of its Subsidiaries, taken as a whole.
Neither the Company nor any of its Subsidiaries has received any notice of
proceedings relating to the revocation or modification of any
authorization, approval, order, license, certificate, franchise or permit
which, singly or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, would adversely affect the general affairs,
business, business prospects, earnings, position, value, properties
management, condition (financial or otherwise), operations or results of
operations of the Company and any of its Subsidiaries, taken as a whole.
There are no pending investigations known to the Company involving the
Company or any of its Subsidiaries by any governmental agency having
jurisdiction over the Company or its Subsidiaries or their respective
businesses or operations. The disclosures in the Registration Statement
concerning the effects of federal, state, local and foreign laws, rules and
regulations on each of the Company's and any of its Subsidiaries'
businesses as currently conducted and as proposed to be conducted are
correct in all material respects and do not omit to state a material fact
required to be stated therein or necessary to make the statements contained
therein not misleading in light of the circumstances under which they were
made.
(j) Each of the Company and its Subsidiaries has, and at the Closing
Date will have, (i) all governmental licenses, permits, consents, orders,
approvals and other authorizations necessary to carry on its business as
contemplated in the Prospectus, (ii) complied in all respects with all
laws, regulations and orders applicable to it or its business (including,
without limitation, those relating to the resale of returned bedding) and
(iii) performed all obligations required to be performed by it, and is not,
and at the Closing Date will not be, in default under any indenture,
mortgage, deed of
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trust, voting trust agreement, loan agreement, bond, debenture, note
agreement, lease, contract or other agreement or instrument (collectively,
a 'Contract or Other Agreement') to which it is a party or by which its
property is bound or affected. To the best knowledge of the Company and
each of its Subsidiaries, no other party under any Contract or Other
Agreement to which it is a party is in default in any respect thereunder.
Each of the Company and its Subsidiaries is not now, and at the Closing
Date will not be, in violation of any provision of its certificate of
incorporation or by-laws.
(k) No consent, approval, authorization or order of, or any filing or
declaration with, any court or governmental agency or body is required in
connection with the authorization, issuance, transfer, sale or delivery of
the Securities by the Company, in connection with the execution, delivery
and performance of this Agreement, the Representative's Warrant Agreement,
the Escrow Agreement (as defined in Section 5(n) below), the Lease (as
defined in Section 3(bb) below), the Reorganization Escrow Agreement (as
defined in the Prospectus under the caption 'Reorganization of the Company
and Change in Tax Status')(3) (this Agreement, the Representative's Warrant
Agreement, the Escrow Agreement, the Lease and the Reorganization Escrow
Agreement are referred to herein collectively as the 'Company Agreements'),
or Harry Acker's Recovery Waiver (as defined in Section 5(m) below), by the
Company or Harry Acker, as the case may be, or in connection with the
taking by the Company or Harry Acker of any action contemplated hereby or
thereby, except as have been obtained under the Act or the Rules and
Regulations and such as may be required under state securities or Blue Sky
laws or the by-laws and rules of the National Association of Securities
Dealers, Inc. (the 'NASD') in connection with the purchase and distribution
by the Underwriters of the Shares to be sold by the Company.
(l) The Company has and will have full corporate power and authority
to enter into the Company Agreements. This Agreement has been duly
authorized, executed and delivered by the Company and constitutes a valid
and binding agreement of the Company and is enforceable against the Company
in accordance with the terms hereof, and each other Company Agreement will
have been duly authorized, executed and delivered by the Company and will
constitute a valid and binding agreement of the Company and will be
enforceable against the Company in accordance with the terms thereof. The
performance of the Company Agreements and the consummation of the
transactions contemplated hereby and thereby, as the case may be, and the
application of the net proceeds from the offering and sale of the Shares to
be sold by the Company in the manner set forth in the Prospectus under 'Use
of Proceeds' will not result in the creation or imposition of any lien,
charge or encumbrance upon any of the assets of the Company or any of its
Subsidiaries pursuant to the terms or provisions of, or result in a breach
or violation of any of the terms or provisions of, or constitute a default
under, or give any other party a right to terminate any of its obligations
under, or result in the acceleration of any obligation under, (x) the
certificate of incorporation or by-laws of the Company or any of its
Subsidiaries, or (y) any contract or other agreement to which the Company
or any of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries or any of its properties is bound or affected, or violate or
conflict with any judgment, ruling, decree, order, statute, rule or
regulation of any court or other governmental agency or body applicable to
the business or properties of the Company or any of its Subsidiaries.
(m) Each of the Company and its Subsidiaries has good and marketable
title to all properties and assets described in the Prospectus to be owned
respectively by it, free and clear of all liens, charges, encumbrances or
restrictions, except such as are described in the Prospectus or are not
material to the business of the Company or its Subsidiaries. Each of the
Company and its Subsidiaries has valid, subsisting and enforceable leases
for the properties described in the Prospectus to be leased by it, with
such exceptions as are not material and do not materially interfere with
the use made and proposed to be made of such properties by the Company and
such Subsidiaries.
- ------------
(3) The Reorganization Escrow Agreement, ensuring that the proper amount of
funds is distributed to Harry Acker from the 'AAA' account, is not described
in the current preliminary Prospectus, but such disclosure should be added
to the Prospectus.
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(n) There is no document or contract of a character required to be
described in the Registration Statement or the Prospectus or to be filed as
an exhibit to the Registration Statement which is not described or filed as
required. All such contracts to which the Company or any Subsidiary is a
party have been duly authorized, executed and delivered by the Company or
such Subsidiary, constitute valid and binding agreements of the Company or
such Subsidiary and are enforceable against the Company or such Subsidiary
in accordance with the terms thereof.
(o) No statement, representation, warranty or covenant made by the
Company in this Agreement or made in any certificate or document required
by this Agreement to be delivered to the Representative was or will be,
when made, inaccurate, untrue or incorrect.
(p) Neither the Company nor any of its directors, officers or
controlling persons has taken, directly or indirectly, any action intended
to cause or result in, or which might reasonably be expected to cause or
result in, or which has constituted, stabilization or manipulation, under
the Act or otherwise, of the price of any security of the Company to
facilitate the sale or resale of the Shares.
(q) No holder of securities of the Company has rights to register any
securities of the Company because of the filing of the Registration
Statement.
(r) Neither the Company nor any of its Subsidiaries is involved in any
material labor dispute nor, to the knowledge of the Company, is any such
dispute threatened.
(s) The Company and its Subsidiaries own, or are licensed or otherwise
have the full exclusive right to use, all material trademarks and trade
names which are used in or necessary for the conduct of their respective
businesses as described in the Prospectus. Neither the Company nor any of
its Subsidiaries has received any notice of any claims asserted by any
person with respect to the use of any such trademarks or trade names, or
challenging or questioning the validity or effectiveness of any such
trademark or trade name. The use, in connection with the business and
operations of the Company and its Subsidiaries of such trademarks and trade
names does not, to the Company's knowledge, infringe on the rights of any
person. Except as set forth in the Prospectus, the Company and its
Subsidiaries are not obligated or under any liability whatsoever to make
any payment by way of royalties, fees or otherwise to any owner or licensee
of, or other claimant to, any trademark, service mark or trade name with
respect to the use thereof or in connection with the conduct of their
respective businesses or otherwise.
(t) The Company has complied with, and until the completion of the
distribution of the Shares, will comply with all of the provisions of
(including, without limitation, filing all forms required by) Section
517.075 of the Florida Securities and Investor Protection Act and
Regulation 3E-900.001 thereunder with respect to the offering and sale of
the Shares.
(u) Neither the Company, its Subsidiaries nor, to the best of the
Company's knowledge after due inquiry, any of their respective officers,
directors, partners, employees, agents or affiliates or any other person
acting on behalf of the Company or any of its Subsidiaries have, directly
or indirectly, given or agreed to give any money, gift or similar benefit
(other than legal price concessions to customers in the ordinary course of
business) to any customer, supplier, employee or agent of a customer or
supplier, official or employee of any governmental agency (domestic or
foreign), instrumentality of any government (domestic or foreign) or any
political party or candidate for office (domestic or foreign) or other
person who was, is or may be in a position to help or hinder the business
of the Company or any of its Subsidiaries (or assist the Company or any of
its Subsidiaries in connection with any actual or proposed transaction)
which (i) might subject the Company or any of its Subsidiaries or any other
such individual or entity to any damage or penalty in any civil, criminal
or governmental litigation or proceeding (domestic or foreign), (ii) if not
given in the past, might have had a materially adverse effect on the
assets, business or operations of the Company or any of its Subsidiaries,
or (iii) if not continued in the future, might adversely affect the assets,
business, operations or prospects of the Company or any of its
Subsidiaries.
(v) Each of the Company and its Subsidiaries maintains insurance
policies and surety bonds, including, but not limited to, general liability
and property insurance, which insure the Company, its
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Subsidiaries and their respective employees against losses and risks
reasonably insured against by comparable businesses. Neither the Company
nor any of its Subsidiaries (i) has failed to give notice or present any
insurance claim with respect to any matter, including, but not limited to,
the Company's or any of its Subsidiaries' business, property or employees,
under any insurance policy or surety bond in a due and timely manner, (ii)
has any disputes or claims against any underwriter of such insurance
policies or surety bonds or has failed to pay any premiums due and payable
thereunder or (iii) has failed to comply with all material terms and
conditions contained in such insurance policies and surety bonds. There are
no facts or circumstances which would relieve any insurer of its obligation
under any such insurance policy or surety bond to satisfy in full any valid
claim of the Company or any of its Subsidiaries.
(w) Except as described in the Prospectus, neither the Company nor any
of its Subsidiaries maintains, sponsors or contributes to any program or
arrangement that is an 'employee pension benefit plan,' an 'employee
welfare benefit plan' or a 'multiemployer plan' (collectively, 'ERISA
Plans') as such terms are defined in Sections 3(2), 3(1) and 3(37),
respectively, of the Employee Retirement Income Security Act of 1974, as
amended ('ERISA'). Neither the Company nor any of its Subsidiaries has
maintained or contributed to a defined benefit plan as defined in Section
3(35) of ERISA. No ERISA Plan (or any trust created thereunder) has engaged
in a 'prohibited transaction' within the meaning of Section 406 of ERISA or
Section 4975 of the Code, which could subject the Company or any of its
Subsidiaries to any tax penalty on prohibited transactions and which has
not adequately been corrected. Each ERISA Plan is in compliance with all
material reporting, disclosure and other requirements of the Code and ERISA
as they relate to such ERISA Plan. Determination letters have been received
from the Internal Revenue Service with respect to each ERISA Plan which are
intended to comply with Code Section 401(a) stating that such ERISA Plan
and the attendant trust are qualified thereunder. Neither the Company nor
any of its Subsidiaries has ever completely or partially withdrawn from
such a 'multiemployer plan.' Neither the Company nor any of its
Subsidiaries will be subject to any material liability under ERISA or any
ERISA Plans.
(x) Each of the Company and its Subsidiaries owns and has the
unrestricted right to use all trade secrets, know-how, technology
(including all other unpatented and/or unpatentable proprietary or
confidential information, systems or procedures), inventions, designs,
processes, works of authorship, computer programs and technical data and
information (collectively, the 'Intellectual Property') that are or could
reasonably be expected to be material to its business as currently
conducted or proposed to be conducted or to the development, manufacture,
operation and sale of any products and services sold or proposed to be sold
by any of the Company or any of its Subsidiaries, each free and clear of
and without violating any right, claimed right, charge, encumbrance,
pledge, security interest, defect, restriction, equity or lien of any kind
whatsoever of others, including without limitation, former employers of its
employees. Neither the Company nor any of its Subsidiaries has received any
notice of infringement of or conflict with asserted rights of others with
respect to any patent, patent application, copyright or Intellectual
Property which singly or in the aggregate, if the subject of any
unfavorable decision, ruling or finding, might have an adverse effect on
the general affairs, business, business prospects, earnings, position,
value, properties, management, condition (financial or otherwise),
operations or results of operations of the Company and its Subsidiaries,
taken as a whole. Except as set forth in the Prospectus, the Company and
its Subsidiaries are not obligated or under any liability whatsoever to
make any payment by way of royalties, fees or otherwise to any owner or
licensee of, or other claimant to, any patent, patent application,
copyright or Intellectual Property, with respect to the use thereof or in
connection with the conduct of their respective businesses or otherwise.
(y) Each of the Company and its Subsidiaries has taken reasonable
security measures to protect the secrecy, confidentiality and value of all
their Intellectual Property in all material aspects.
(z) The Company has granted options to purchase no more than an
aggregate of 234,400 shares of its Common Stock pursuant to its 1996 Stock
Option Plan, or otherwise, and the number of options granted to each of its
executive officers named in the Prospectus under the caption 'Management'
and to each other employee does not exceed the number heretofore approved
by
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the Representative. The Board of Directors of the Company has created a
Compensation Committee, a majority of which shall at all times consist of
directors independent of the Company's management. The Compensation
Committee has the sole authority to administer the Company's Executive
Bonus Plan and 1996 Stock Option Plan.
(aa) The Company has acquired all of the outstanding shares of capital
stock and evidence of indebtedness of (i) each of the corporations named in
the Prospectus under the caption 'Reorganization of the Company and Change
of Tax Status' and (ii) each of the corporations (including without
limitation those listed on Exhibit 21 to the Registration Statement) owning
or leasing any location at or in which the Company conducts any part of its
business as described in the Prospectus.
(bb) The Company and BDC Realty Corp. have entered into a lease
substantially in the form of Exhibit B hereto (the 'Lease') by which the
Company leases the property constituting its warehouse and headquarters at
175 Central Avenue South, Bethpage, New York, from BDC Realty Corp. and BDC
Realty Corp. agrees to construct a 71,000 square foot addition to such
property. BDC Realty Corp. has entered into a definitive construction loan
agreement with Fleet National Bank of New York in the form previously
furnished to the Representative under which BDC Realty Corp. has available
to it sufficient funds to complete such construction in accordance with the
Company's requirements and specifications. The annual fair market rental
value of the property described in the Lease is not less than the annual
rent amount specified therein.
4. Agreements of the Company. The Company agrees with the several
Underwriters as follows:
(a) The Company shall not, either prior to the Effective Date or
thereafter during such period as the Prospectus is required by law to be
delivered in connection with sales of the Shares by an Underwriter or
dealer, file any amendment or supplement to the Registration Statement or
the Prospectus, unless a copy thereof shall first have been submitted to
the Representative within a reasonable period of time prior to the filing
thereof and the Representative shall not have objected thereto in good
faith.
(b) The Company shall use its best efforts to cause the Registration
Statement to become effective, and shall notify the Representative
promptly, and shall confirm such advice in writing, (1) when the
Registration Statement has become effective and when any post-effective
amendment thereto becomes effective, (2) of any request by the Commission
for amendments or supplements to the Registration Statement or the
Prospectus or for additional information, (3) of the commencement by the
Commission or by any state securities commission of any proceedings for the
suspension of the qualification of any of the Shares or Warrant Shares for
offering or sale in any jurisdiction or of the initiation, or the
threatening, of any proceeding for that purpose, including, without
limitation, the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or the initiation of any
proceedings for that purpose or the threat thereof, (4) of the happening of
any event during the period mentioned in the second sentence of Section
4(e) hereof that in the judgment of the Company makes any statement made in
the Registration Statement or the Prospectus untrue or that requires the
making of any changes in the Registration Statement or the Prospectus in
order to make the statements therein, in light of the circumstances in
which they are made, not misleading and (5) of receipt by the Company or
any representative of the Company of any other communication from the
Commission relating to the Company, the Registration Statement, any
preliminary prospectus or the Prospectus. If at any time the Commission
shall issue any order suspending the effectiveness of the Registration
Statement, the Company shall make every reasonable effort to obtain the
withdrawal of such order at the earliest possible moment. The Company shall
use its best efforts to comply with the provisions of and make all
requisite filings with the Commission pursuant to Rule 430A and to notify
the Representative promptly of all such filings.
(c) The Company shall furnish to the Representative, without charge,
two signed copies of the Registration Statement and of any post-effective
amendment thereto, including financial statements and schedules, and all
exhibits thereto and shall furnish to the Representative, without charge,
for transmittal to each of the other Underwriters, a copy of the
Registration Statement and any post-effective amendment thereto, including
financial statements and schedules but without exhibits.
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(d) The Company shall comply with all the provisions of any
undertakings contained in the Registration Statement.
(e) On the Effective Date, and thereafter from time to time, the
Company shall deliver to each of the Underwriters, without charge, as many
copies of the Prospectus or any amendment or supplement thereto as the
Representative may reasonably request. The Company consents to the use of
the Prospectus or any amendment or supplement thereto by the several
Underwriters and by all dealers to whom the Shares may be sold, both in
connection with the offering or sale of the Shares and for any period of
time thereafter during which the Prospectus is required by law to be
delivered in connection therewith. If during such period of time any event
shall occur which in the judgment of the Company or counsel to the
Underwriters should be set forth in the Prospectus in order to make any
statement therein, in the light of the circumstances under which it was
made, not misleading, or if it is necessary to supplement or amend the
Prospectus to comply with law, the Company shall forthwith prepare and duly
file with the Commission an appropriate supplement or amendment thereto,
and shall deliver to each of the Underwriters, without charge, such number
of copies thereof as the Representative may reasonably request.
(f) Prior to any public offering of the Shares by the Underwriters,
the Company shall cooperate with the Representative and counsel to the
Underwriters in connection with the registration or qualification of the
Shares for offer and sale under the securities or Blue Sky laws of such
jurisdictions as the Representative may request; provided, however, that in
no event shall the Company be obligated to qualify to do business in any
jurisdiction where it is not now so qualified or to take any action which
would subject it to general service of process in any jurisdiction where it
is not now so subject.
(g) During the period of five years commencing on the Effective Date,
the Company shall furnish to the Representative and each other Underwriter
who may so request copies of such financial statements and other periodic
and special reports as the Company may from time to time distribute
generally to the holders of any class of its capital stock, and will
furnish to the Representative and each other Underwriter who may so request
a copy of each annual or other report it shall be required to file with the
Commission.
(h) The Company shall make generally available to holders of its
securities as soon as may be practicable but in no event later than the
last day of the fifteenth full calendar month following the calendar
quarter in which the Effective Date falls, an earnings statement (which
need not be audited but shall be in reasonable detail) for a period of 12
months ended commencing after the Effective Date, and satisfying the
provisions of Section 11(a) of the Act (including Rule 158 of the Rules and
Regulations).
(i) Whether or not any of the transactions contemplated by this
Agreement are consummated or this Agreement is terminated, the Company
shall pay, or reimburse if paid by the Representative, all costs and
expenses incident to the performance of the obligations of the Company
under this Agreement, including but not limited to costs and expenses of or
relating to (1) the preparation, printing and filing of the Registration
Statement and exhibits to it (including, without limitation, the
registration fee payable to the Commission), each preliminary prospectus,
the Prospectus and any amendment or supplement to the Registration
Statement or the Prospectus, (2) the preparation and delivery of
certificates representing the Securities, (3) the printing of this
Agreement, the Representative's Warrant Agreement, the Agreement Among
Underwriters, any Dealer Agreements, any Underwriters' Questionnaire and
the Agreement and Power of Attorney, (4) furnishing (including costs of
shipping, mailing and courier) such copies of the Registration Statement,
the Prospectus and any preliminary prospectus, and all amendments and
supplements thereto, as may be requested for use in connection with the
offering and sale of the Shares by the Underwriters or by dealers to whom
Shares may be sold, (5) the listing of the Shares and Warrant Shares on the
Nasdaq National Market System or any stock exchange, (6) any filings
required to be made by the Underwriters with the NASD, and the fees,
disbursements and other charges of counsel for the Underwriters in
connection therewith, (7) the registration or qualification of the Shares
or Warrant Shares for offer and sale under the securities or Blue Sky laws
of such jurisdic-tions designated pursuant to Section 4(f) hereof,
including the fees, disbursements and other
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charges of counsel to the Underwriters in connection therewith (subject to
a cap of $30,000), and the preparation and printing of preliminary,
supplemental and final Blue Sky memoranda, (8) counsel to the Company, (9)
the transfer agent for the Shares and Warrant Shares, (10) the Accountants,
(11) investor presentations on any 'road show' undertaken in connection
with the marketing of the offering of the Shares, including, without
limitation, costs and expenses associated with the production of road show
slides and graphics, costs and expenses associated with mailing of
materials and room rentals, fees and expenses of any consultants engaged in
connection with the road show presentations, ground, air and other travel
and lodging expenses of the representatives and officers of the Company and
any such consultants, and the cost of any aircraft chartered in connection
with such road show, (12) due diligence investigations, (13) all
advertising costs and expenses, including, without limitation, costs and
expenses relating to any 'tombstone' advertisement and costs and expenses
of any bound volume or prospectus memorabilia. In addition, if the
transactions contemplated by this Agreement are consummated, the Company
shall pay GKM an expense allowance equal to 0.50% of the gross proceeds of
the Offering on a non-accountable basis.
(j) If this Agreement shall be terminated by the Company pursuant to
any of the provisions hereof (other than pursuant to Section 8) or if for
any reason the Company shall be unable to perform its obligations
hereunder, the Company shall reimburse the several Underwriters for all
out-of-pocket expenses (including the fees, disbursements and other charges
of counsel to the Underwriters) reasonably incurred by them in connection
herewith not to exceed $75,000 in the aggregate.
(k) The Company shall not at any time, directly or indirectly, take
any action intended to cause or result in, or which might reasonably be
expected to cause or result in, or which will constitute, stabilization or
manipulation, under the Act or otherwise, of the price of the shares of
Common Stock to facilitate the sale or resale of any of the Shares.
(l) The Company shall apply the net proceeds from the offering and
sale of the Shares to be sold by the Company in the manner set forth in the
Prospectus under 'Use of Proceeds' and shall file such reports with the
Commission with respect to the sale of the Shares and the application of
the proceeds therefrom as may be required in accordance with Rule 463 under
the Act.
(m) During the period of 180 days commencing at the Closing Date, the
Company shall not, without the prior written consent of GKM, grant options
to purchase shares of Common Stock at a price less than the initial public
offering price.
(n) The Company shall not, and shall cause each of its executive
officers, directors and each beneficial owner of more than 5% of the
outstanding shares of Common Stock to enter into agreements with the
Representative in the form set forth in Exhibit C to the effect that they
shall not, for a period of 180 days after the commencement of the public
offering of the Shares, without the prior written consent of GKM, offer to
sell, sell, pledge, contract to sell, grant any option to purchase, or
otherwise dispose of, or require the Company to file with the Commission a
registration statement under the Act to register, any shares of Common
Stock or securities convertible into or exchangeable for Common Stock or
warrants or other rights to acquire shares of Common Stock of which the
undersigned is now, or may in the future become, the beneficial owner
(within the meaning of Rule 13d-3 under the Securities Exchange Act of
1934, as amended, hereinafter referred to as the 'Exchange Act').
(o) The Company shall not permit Andrea 'A.J.' Acker to be granted or
receive more than 10,000 options to purchase Common Stock under the
Company's 1996 Stock Option Plan. Prior to [June , 1998], the Company
shall not amend the 1996 Stock Option Plan or the Executive Bonus Plan in
any material respect without the prior written consent of the
Representative. Other than pursuant to the Executive Bonus Plan, Harry
Acker shall receive no bonus from the Company or any of its Subsidiaries
for fiscal years 1996, 1997 and 1998.
(p) Within 90 days of the Closing Date, the Board of Directors of the
Company shall appoint two independent directors and shall establish an
independent audit committee, in each case that
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satisfies the requirements of Sections (c) and (d) of NASD Rule 4460
(formerly Schedule D, Part III, Section 6 of the NASD By-Laws).
5. Conditions of the Obligations of the Underwriters. In addition to the
execution and delivery of the Price Determination Agreement, the obligations of
each Underwriter hereunder are subject to the following conditions:
(a) Notification that the Registration Statement has become effective
shall be received by the Representative not later than 5:00 p.m., New York
City time, on the date of this Agreement or at such later date and time as
shall be consented to in writing by the Representative and all filings
required by Rule 424 of the Rules and Regulations and Rule 430A shall have
been made.
(b) (i) No stop order suspending the effectiveness of the Registration
Statement shall have been issued and no proceedings for that purpose shall
be pending or threatened by the Commission, (ii) no order suspending the
effectiveness of the Registration Statement or the qualification or
registration of the Shares under the securities or Blue Sky laws of any
jurisdiction shall be in effect and no proceeding for such purpose shall be
pending before or threatened or contemplated by the Commission or the
authorities of any such jurisdiction, (iii) any request for additional
information on the part of the staff of the Commission or any such
authorities shall have been complied with to the satisfaction of the staff
of the Commission or such authorities and (iv) after the date hereof no
amendment or supplement to the Registration Statement or the Prospectus
shall have been filed unless a copy thereof was first submitted to the
Representative and the Representative did not object thereto in good faith,
and the Representative shall have received certificates, dated the Closing
Date and the Option Closing Date and signed by the Chief Executive Officer
or the Chairman of the Board of Directors of the Company and the Chief
Financial Officer of the Company (who may, as to proceedings threatened,
rely upon the best of their information and belief), to the effect of
clauses (i), (ii) and (iii).
(c) Since the respective dates as of which information is given in the
Registration Statement and the Prospectus, (i) there shall not have been a
material adverse change or development involving a prospective material
adverse change, in the general affairs, business, business prospects,
earnings, position, value, properties, management, condition (financial or
otherwise), operations or results of operations of the Company and its
Subsidiaries, taken as a whole, whether or not arising from transactions in
the ordinary course of business, in each case other than as set forth in or
contemplated by the Registration Statement and the Prospectus, (ii) neither
the Company nor any of its Subsidiaries shall have sustained any material
loss or interference with its business or properties from fire, explosion,
flood or other casualty, whether or not covered by insurance, or from any
labor dispute or any court or legislative or other governmental action,
order or decree, which is not set forth in the Registration Statement and
the Prospectus, if in the judgment of the Representative any such
development makes it impracticable or inadvisable to consummate the sale
and delivery of the Shares by the Underwriters at the initial public
offering price, (iii) there shall have been no transactions, not in the
ordinary course of business, entered into by the Company or any of its
Subsidiaries and no liabilities or obligations incurred by the Company or
any of its Subsidiaries, in each case from the latest date as of which the
financial condition of the Company and its Subsidiaries is set forth in the
Registration Statement and the Prospectus, which are adverse to the Company
and its Subsidiaries, taken as a whole, (iv) neither the Company nor any of
its Subsidiaries has issued any securities (other than the Securities) or
declared or paid any dividend or made any distribution in respect of its
capital stock of any class, debt (long term or short term) or, except in
the ordinary course of business, liabilities or obligations of the Company
or any of its Subsidiaries (contingent or otherwise), except as set forth
in the Registration Statement and Prospectus, and (v) no material amount of
the assets of the Company or any of its Subsidiaries shall have been
pledged, mortgaged or otherwise encumbered, except as set forth in the
Registration Statement and Prospectus.
(d) Since the respective dates as of which information is given in the
Registration Statement and the Prospectus, there shall have been no
litigation or other proceeding instituted against the Company or any of its
Subsidiaries or any of their respective officers or directors in their
capacities as such, before or by any Federal, state or local court,
commission, regulatory body, administrative
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agency or other governmental body, domestic or foreign, in which litigation
or proceeding an unfavorable ruling, decision or finding would materially
and adversely affect the general affairs, business, business prospects,
earnings, position, value, properties, management, condition (financial or
otherwise), operations or results of operations of the Company and its
Subsidiaries, taken as a whole.
(e) Each of the representations and warranties of the Company
contained herein shall be true and correct in all material respects at the
Closing Date and, with respect to the Option Shares, at the Option Closing
Date, as if made at the Closing Date and, with respect to the Option
Shares, at the Option Closing Date, and all covenants and agreements
contained herein to be performed by the Company and all conditions
contained herein to be fulfilled or complied with by the Company at or
prior to the Closing Date and, with respect to the Option Shares, at or
prior to the Option Closing Date, shall have been duly performed, fulfilled
or complied with.
(f) The Representative shall have received opinions, each dated the
Closing Date and, with respect to the Option Shares, the Option Closing
Date, satisfactory in form and substance to counsel for the Underwriters,
from Parker Chapin Flattau & Klimpl, LLP, counsel to the Company, to the
effect set forth in Exhibit D.
(g) The Representative shall have received an opinion, dated the
Closing Date and the Option Closing Date, from Paul, Weiss, Rifkind,
Wharton & Garrison, counsel to the Underwriters, with respect to the
Registration Statement, the Prospectus and this Agreement, which opinion
shall be satisfactory in all respects to the Representative.
(h) On the date of the Prospectus, the Accountants shall have
furnished to the Representative a letter, dated the date of its delivery,
addressed to the Representative and in form and substance satisfactory to
the Representative, confirming that they are independent accountants with
respect to the Company as required by the Act and the Rules and Regulations
and with respect to the financial and other statistical and numerical
information contained in the Registration Statement. At the Closing Date
and, as to the Option Shares, the Option Closing Date, the Accountants
shall have furnished to the Representative a letter, dated the date of its
delivery, which shall confirm, on the basis of a review in accordance with
the procedures set forth in the letter from the Accountants, that nothing
has come to their attention during the period from the date of the letter
referred to in the prior sentence to a date (specified in the letter) not
more than five days prior to the Closing Date and the Option Closing Date
which would require any change in their letter dated the date of the
Prospectus, if it were required to be dated and delivered at the Closing
Date and the Option Closing Date.
(i) At the Closing Date and, as to the Option Shares, the Option
Closing Date, there shall be furnished to the Representative an accurate
certificate, dated the date of its delivery, signed by each of the Chief
Executive Officer and the Chief Financial Officer of the Company, in form
and substance satisfactory to the Representative, to the effect that:
(i) Each signer of such certificate has carefully examined the
Registration Statement and the Prospectus, and (A) as of the date of
such certificate, such documents are true and correct in all material
respects and do not omit to state a material fact required to be stated
therein or necessary in order to make the statements therein not
misleading in light of the circumstances under which they were made, and
(B) since the Effective Date, no event has occurred as a result of which
it is necessary to amend or supplement the Prospectus in order to make
the statements therein not untrue or misleading in any material respect.
(ii) Each of the representations and warranties of the Company
contained in this Agreement were, when originally made, and are, at the
time such certificate is delivered, true and correct in all material
respects.
(iii) Each of the covenants required herein to be performed by the
Company on or prior to the date of such certificate has been duly,
timely and fully performed and each condition herein required to be
complied with by the Company on or prior to the delivery of such
certificate has been duly, timely and fully complied with.
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(j) On or prior to the Closing Date, the Representative shall have
received the executed agreements referred to in Section 4(n).
(k) The Shares and Warrant Shares shall be qualified for sale in such
states as the Representative may reasonably request, each such
qualification shall be in effect and not subject to any stop order or other
proceeding on the Closing Date and the Option Closing Date.
(l) The Company shall have furnished to the Representative such
certificates, in addition to those specifically mentioned herein, as the
Representative may have reasonably requested as to the accuracy and
completeness at the Closing Date and the Option Closing Date of any
statement in the Registration Statement or the Prospectus as to the
accuracy at the Closing Date and the Option Closing Date of the
representations and warranties of the Company herein, as to the performance
by the Company of its obligations hereunder, or as to the fulfillment of
the conditions concurrent and precedent to the obligations hereunder of the
Representative.
(m) Prior to the Closing Date, each of Harry Acker and Jack Brown
shall have entered into a written agreement (each, a 'Recovery Waiver') in
form satisfactory to the Representative in its sole discretion by which he
irrevocably waives any rights that he may have to receive all or any
portion of a judgment or settlement of the shareholder derivative lawsuits
filed in the Supreme Court of the State of New York, New York Country,
styled Sid Patterson v. M.J.R. Bedding Co., Inc., Bedding Discount Centers,
Inc., Harold Acker and Jack Brown, Index No. 576/89 (the 'M.J.R. Action')
and Sid Patterson v. Hapat Bedding Corp, Bedding Discount Centers, Inc.,
Harold Acker and Jack Brown, Index No. 8513/88 (the 'Hapat Action') or any
similar actions and agrees to pay over to the Company any amounts received
in respect thereof.
(n) Prior to the Closing Date, Harry Acker shall have entered into a
written indemnification and escrow agreement ('Escrow Agreement') in form
satisfactory to the Representative in its sole discretion by which he
agrees to indemnify and hold harmless the Company for the amounts of any
judgment, settlement or other costs (including all attorney's fees,
disbursements and costs and expenses of investigation related thereto) in
connection with the M.J.R. Action and the Hapat Action that the Company is
required to pay in excess of an aggregate for both such Actions of
$300,000. On or prior to the Closing Date, Harry Acker shall have deposited
with the escrow agent under such Escrow Agreement for the benefit of the
Company $1,000,000 in cash and an additional $500,000 in cash or Common
Stock (valued at the initial offering price per share) to secure the
indemnification obligation described in (i) above.
(o) Prior to the Closing Date, Harry Acker shall have entered into the
Reorganization Escrow Agreement, and on or prior to the Closing Date, Harry
Acker shall have deposited with the escrow agent under such Reorganization
Escrow Agreement for the benefit of the Company [$ ] in accordance
with the terms thereof.
(p) Prior to the Closing Date, the Company shall have delivered to the
Representative an appraisal acceptable to the Representative in its sole
discretion of the fair market rental value of the property described in the
Lease.
(q) The Company and each of its Subsidiaries party thereto shall have
been released from any and all obligations under (i) the Indemnity
Agreement dated June 11, 1994, among BDC Realty Corp., K.S. Acquisition
Corp., the Company, Sleepy's International, Inc., Harold Acker, Andrea
Acker and Fleet National Bank, N.A. (f/k/a National Westminster Bank USA)
('Fleet'); (ii) the guarantee by the Company of payment obligations under
the promissory note dated May 19, 1995 issued by BDC Realty Corp. to the
Long Island Development Corporation ('LIDC'); and (iii) any other
guarantees or other obligations relating to the indebtedness of BDC Realty
Corp. Andrea 'A.J.' Acker and David Acker, as the stockholders of BDC
Realty Corp., shall have agreed in writing to guarantee the obligations of
BDC Realty Corp. to Fleet and LIDC.
(r) The Company shall have delivered to the Representative a
certificate of an officer of the Company attaching a complete, true and
correct copy of its procedures relating to the regulations described in the
Prospectus under the caption 'Business -- Government Regulation' and
certifying that such procedures are in effect as of the Closing Date.
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6. Indemnification.
(a) The Company and Harry Acker, jointly and severally, shall indemnify and
hold harmless each Underwriter, the directors, officers, employees, counsel and
agents of each Underwriter and each person, if any, who controls each
Underwriter within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act from and against any and all losses, claims, liabilities, expenses
and damages (including any and all investigative, legal and other expenses
reasonably incurred in connection with, and any amount paid in settlement of,
any action, suit or proceeding between any of the indemnified parties and any
indemnifying parties or between any indemnified party and any third party, or
otherwise, or any claim asserted), to which they, or any of them, may become
subject under the Act, the Exchange Act or other Federal or state statutory law
or regulation, at common law or otherwise, insofar as such losses, claims,
liabilities, expenses or damages arise out of or are based on any untrue
statement or alleged untrue statement of a material fact contained in (i) any
preliminary prospectus, the Registration Statement or the Prospectus or any
amendment or supplement to the Registration Statement or the Prospectus, (ii)
any application, other document or written communication, executed by the
Company or based upon written information supplied by the Company, filed with or
sent to the Commission, (iii) any application, other document or written
communication, executed by the Company or based upon written information
supplied by the Company, filed in any jurisdiction in order to qualify the
Shares under the securities laws of such jurisdiction, or (iv) any document,
executed by the Company or based on written information supplied by the Company,
filed with any securities exchange, or the omission or alleged omission to state
in such documents enumerated in clauses (i) -- (iv) of a material fact required
to be stated therein or necessary to make the statements therein not misleading,
provided that the Company shall not be liable to the extent that such loss,
claim, liability, expense or damage arises from the sale of the Shares in the
public offering to any person by an Underwriter and is based on an untrue
statement or omission or alleged untrue statement or omission made in reliance
on and in conformity with information relating to any Underwriter furnished in
writing to the Company by the Representative on behalf of any Underwriter
expressly for inclusion in the Registration Statement, any preliminary
prospectus or the Prospectus. If multiple claims are brought against any
Underwriter, the directors, officers, employees, counsel and agents of such
Underwriter and any person, if any, who controls such Underwriter within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act, in an
arbitration proceeding, and indemnification is permitted under applicable law
and is provided for under this Agreement with respect to at least one such
claim, the Company and Harry Acker agree that any arbitration award shall be
conclusively deemed to be based on claims as to which indemnification is
permitted and provided for, except to the extent the arbitration award expressly
states that the award, or any portion thereof, is based solely on a claim as to
which indemnification is not available. This indemnity agreement will be in
addition to any liability that the Company or Harry Acker might otherwise have.
(b) Each Underwriter shall indemnify and hold harmless the Company, each
person, if any, who controls the Company within the meaning of Section 15 of the
Act or Section 20 of the Exchange Act, each director of the Company and each
officer of the Company who signs the Registration Statement to the same extent
as the foregoing indemnity from the Company to each Underwriter, but only
insofar as losses, claims, liabilities, expenses or damages arise out of or are
based on any untrue statement or omission or alleged untrue statement or
omission made in reliance on and in conformity with information relating to any
Underwriter furnished in writing to the Company by the Representative on behalf
of such Underwriter expressly for use in the Registration Statement, any
preliminary prospectus or the Prospectus. This indemnity will be in addition to
any liability that each Underwriter might otherwise have.
(c) Any party that proposes to assert the right to be indemnified under
this Section 6 shall, promptly after receipt of notice of commencement of any
action against such party in respect of which a claim is to be made against an
indemnifying party or parties under this Section 6, notify each such
indemnifying party of the commencement of such action, enclosing a copy of all
papers served, but the omission so to notify such indemnifying party shall not
relieve it from any liability that it may have to any indemnified party under
the foregoing provisions of this Section 6 unless, and only to the extent that,
such omission results in the forfeiture of substantive rights or defenses by the
indemnifying party. If any such action is brought against any indemnified party
and it notifies the indemnifying party of its
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commencement, the indemnifying party will be entitled to participate in and, to
the extent that it elects by delivering written notice to the indemnified party
promptly after receiving notice of the commencement of the action from the
indemnified party, jointly with any other indemnifying party similarly notified,
to assume the defense of the action, with counsel satisfactory to the
indemnified party, and after notice from the indemnifying party to the
indemnified party of its election to assume the defense, the indemnifying party
will not be liable to the indemnified party for any legal or other expenses
except as provided below and except for the reasonable costs of investigation
subsequently incurred by the indemnified party in connection with the defense.
The indemnified party will have the right to employ its own counsel in any such
action, but the fees, expenses and other charges of such counsel will be at the
expense of such indemnified party unless (1) the employment of counsel by the
indemnified party has been authorized in writing by the indemnifying party, (2)
the indemnified party has reasonably concluded (based on advice of counsel) that
there may be legal defenses available to it or other indemnified parties that
are different from or in addition to those available to the indemnifying party,
(3) a conflict or potential conflict exists (based on advice of counsel to the
indemnified party) between the indemnified party and the indemnifying party (in
which case the indemnifying party shall not have the right to direct the defense
of such action on behalf of the indemnified party) or (4) the indemnifying party
has not in fact employed counsel to assume the defense of such action within a
reasonable time after receiving notice of the commencement of the action, in
each of which cases the reasonable fees, disbursements and other charges of
counsel shall be at the expense of the indemnifying party or parties. It is
understood that the indemnifying party or parties shall not, in connection with
any proceeding or related proceedings in the same jurisdiction, be liable for
the reasonable fees, disbursements and other charges of more than one separate
firm admitted to practice in such jurisdiction at any one time for all such
indemnified party or parties. All such fees, disbursements and other charges
shall be reimbursed by the indemnifying party promptly as they are incurred. An
indemnifying party shall not be liable for any settlement of any action or claim
effected without its written consent (which consent will not be unreasonably
withheld or delayed). No indemnifying party shall, without the prior written
consent of each indemnified party, settle or compromise or consent to the entry
of any judgment in any pending or threatened claim, action or proceeding
relating to the matters contemplated by this Section 6 (whether or not any
indemnified party is a party thereto), unless such settlement, compromise or
consent includes an unconditional release of each indemnified party from all
liability arising or that may arise out of such claim, action or proceeding.
(d) In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in the foregoing
paragraphs of this Section 6 is applicable in accordance with its terms but for
any reason is held to be unavailable from the Company or the Underwriters, the
Company and the Underwriters shall contribute to the total losses, claims,
liabilities, expenses and damages (including any investigative, legal and other
expenses reasonably incurred in connection with, and any amount paid in
settlement of, any action, suit or proceeding or any claim asserted, but after
deducting any contribution received by the Company from persons other than the
Underwriters, such as persons who control the Company within the meaning of the
Act, officers of the Company who signed the Registration Statement and directors
of the Company, who also may be liable for contribution) to which the Company
and any one or more of the Underwriters may be subject in such proportion as
shall be appropriate to reflect the relative benefits received by the Company on
the one hand and the Underwriters on the other. The relative benefits received
by the Company on the one hand and the Underwriters on the other shall be deemed
to be in the same proportion as the total net proceeds from the offering (before
deducting expenses) received by the Company bear to the total underwriting
discounts and commissions received by the Underwriters, in each case as set
forth in the table on the cover page of the Prospectus. If, but only if, the
allocation provided by the foregoing sentence is not permitted by applicable
law, the allocation of contribution shall be made in such proportion as is
appropriate to reflect not only the relative benefits referred to in the
foregoing sentence but also the relative fault of the Company, on the one hand,
and the Underwriters, on the other, with respect to the statements or omissions
which resulted in such loss, claim, liability, expense or damage, or action in
respect thereof, as well as any other relevant equitable considerations with
respect to such offering. Such relative fault shall be determined by reference
to whether the untrue or alleged untrue statement of a material fact or omission
or alleged omission to state a material fact relates to information supplied
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by the Company or the Representative on behalf of the Underwriters, the intent
of the parties and their relative knowledge, access to information and
opportunity to correct or prevent such statement or omission. The Company and
the Underwriters agree that it would not be just and equitable if contributions
pursuant to this Section 6(d) were to be determined by pro rata allocation (even
if the Underwriters were treated as one entity for such purpose) or by any other
method of allocation which does not take into account the equitable
considerations referred to herein. The amount paid or payable by an indemnified
party as a result of the loss, claim, liability, expense or damage, or action in
respect thereof, referred to above in this Section 6(d) shall be deemed to
include, for purpose of this Section 6(d), any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
Section 6(d), no Underwriter shall be required to contribute any amount in
excess of the underwriting discounts received by it, and no person found guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations to contribute as
provided in this Section 6(d) are several in proportion to their respective
underwriting obligations and not joint. For purposes of this Section 6(d), any
person who controls a party to this Agreement within the meaning of the Act will
have the same rights to contribution as that party, and each officer of the
Company who signed the Registration Statement will have the same rights to
contribution as the Company, subject in each case to the provisions hereof. Any
party entitled to contribution, promptly after receipt of notice of commencement
of any action against such party in respect of which a claim for contribution
may be made under this Section 6(d), will notify any such party or parties from
whom contribution may be sought, but the omission so to notify will not relieve
the party or parties from whom contribution may be sought from any other
obligation it or they may have under this Section 6(d). No party will be liable
for contribution with respect to any action or claim settled without its written
consent (which consent will not be unreasonably withheld).
(e) The indemnity and contribution agreements contained in this Section 6
and the representations and warranties of the Company contained in this
Agreement shall remain operative and in full force and effect regardless of (i)
any investigation made by or on behalf of the Underwriters, (ii) acceptance of
any of the Shares or Representative's Warrants and payment therefor or (iii) any
termination of this Agreement.
7. Termination. The obligations of the several Underwriters under this
Agreement may be terminated at any time prior to the Closing Date (or, with
respect to the Option Shares, on or prior to the Option Closing Date), by notice
to the Company from the Representative, without liability on the part of any
Underwriter to the Company, if, prior to delivery and payment for the Shares (or
the Option Shares, as the case may be), in the sole judgment of the
Representative, (i) trading in any of the equity securities of the Company shall
have been suspended by the Commission, by an exchange that lists the Shares or
by the Nasdaq National Market, (ii) trading in securities generally on the New
York Stock Exchange shall have been suspended or limited or minimum or maximum
prices shall have been generally established on such exchange, or additional
material governmental restrictions, not in force on the date of this Agreement,
shall have been imposed upon trading in securities generally by such exchange or
by order of the Commission or any court or other governmental authority, (iii) a
general banking moratorium shall have been declared by either Federal or New
York State authorities, (iv) any material adverse change in the financial or
securities markets in the United States or in political, financial or economic
conditions in the United States or any outbreak or material escalation of
hostilities or declaration by the United States of a national emergency or war
or other calamity or crisis shall have occurred, the effect of any of which is
such as to make it impracticable or inadvisable to market the Shares or Option
Shares on the terms and in the manner contemplated by the Prospectus, (v) if the
Company or any of its Subsidiaries shall have sustained a loss material or
substantial to the Company or any of its Subsidiaries by reason of flood, fire,
accident, hurricane, earthquake, theft, sabotage, or other calamity or malicious
act which, whether or not such loss shall have been insured, will make it
inadvisable to proceed with the offering and sale of the Shares or Option
Shares, or (vi) if there shall have been a material adverse change in the
general affairs, business, business prospects, earnings, position, value,
properties, management, condition (financial or otherwise), operations or
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results of operations of the Company or the Company and its Subsidiaries, taken
as a whole, as would make it inadvisable to proceed with the offering and sale
of the Shares or Option Shares.
8. Substitution of Underwriters. If any one or more of the Underwriters
shall fail or refuse to purchase any of the Firm Shares which it or they have
agreed to purchase hereunder, and the aggregate number of Firm Shares which such
defaulting Underwriter or Underwriters agreed but failed or refused to purchase
is not more than one-tenth of the aggregate number of Firm Shares, the other
Underwriters shall be obligated, severally, to purchase the Firm Shares which
such defaulting Underwriter or Underwriters agreed but failed or refused to
purchase, in the proportions which the number of Firm Shares which they have
respectively agreed to purchase pursuant to Section 1 bears to the aggregate
number of Firm Shares which all such non-defaulting Underwriters have so agreed
to purchase, or in such other proportions as the Representative may specify;
provided that in no event shall the maximum number of Firm Shares which any
Underwriter has become obligated to purchase pursuant to Section 1 be increased
pursuant to this Section 8 by more than one-ninth of the number of Firm Shares
agreed to be purchased by such Underwriter without the prior written consent of
such Underwriter. If any Underwriter or Underwriters shall fail or refuse to
purchase any Firm Shares and the aggregate number of Firm Shares which such
defaulting Underwriter or Underwriters agreed but failed or refused to purchase
exceeds one-tenth of the aggregate number of the Firm Shares and arrangements
satisfactory to the Company and the Representative for the purchase of such Firm
Shares are not made within 48 hours after such default, this Agreement will
terminate without liability on the part of any non-defaulting Underwriter, or
the Company for the purchase or sale of any Shares under this Agreement. In any
such case either the Representative or the Company shall have the right to
postpone the Closing Date, but in no event for longer than seven days, in order
that the required changes, if any, in the Registration Statement and in the
Prospectus or in any other documents or arrangements may be effected. Any action
taken pursuant to this Section 8 shall not relieve any defaulting Underwriter
from liability in respect of any default of such Underwriter under this
Agreement.
9. Rights of First Refusal. The Company and each of its present and future
Subsidiaries and affiliates hereby grant to GKM a right of first refusal for the
period of 24 months after the Closing Date to act as lead-managing underwriter,
placement agent or financial advisor in connection with (i) any equity or debt
financing (other than bank or other institutional lender financing provided
under a term or revolving credit loan), including, without limitation any public
or private sale of any equity or debt securities, (ii) any merger or acquisition
activity or (iii) any other investment banking services being considered by the
Company, such Subsidiary or affiliate, to the extent that the Company, such
Subsidiary or affiliate, as the case may be, decides to engage an investment
bank or other financial advisor for such services; provided, however, that the
material terms and conditions of GKM's retention shall be commensurate with the
normal and customary terms and conditions of GKM's retention (including GKM's
normal and customary compensation for such services) in similarly sized
transactions for similarly sized clients, as agreed between the Company and GKM
in good faith. To the extent that GKM exercises the right of first refusal
contained in this paragraph, GKM shall have the right to approve any co-managers
or co-placement agents, and shall have the sole right to determine the extent of
their participation in the gross underwriting commissions and/or placement fees.
10. Miscellaneous. Notice given pursuant to any of the provisions of this
Agreement shall be in writing and, unless otherwise specified, shall be mailed
or delivered (a) if to the Company, at the office of the Company, 175 Central
Avenue South, Bethpage, New York 11714, Attention: [Harry Acker], or (b) if to
the Underwriters, to GKM at the offices of GKM, 529 Park Avenue, New York, New
York 10017, Attention: Dominic A. Petito. Any such notice shall be effective
only upon receipt. Any notice under Section 7 or 8 may be made by facsimile,
telex or telephone, but if so made shall be subsequently confirmed in writing.
This Agreement has been and is made solely for the benefit of the several
Underwriters, and the Company and of the controlling persons, directors and
officers referred to in Section 6, and their respective successors and assigns,
and no other person shall acquire or have any right under or by virtue of this
Agreement. The term 'successors and assigns' as used in this Agreement shall not
include a purchaser, as such purchaser, of Shares or Warrant Shares from any of
the several Underwriters.
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All representations, warranties and agreements of the Company contained
herein or in certificates or other instruments delivered pursuant hereto, shall
remain operative and in full force and effect regardless of any investigation
made by or on behalf of any Underwriter or any of their controlling persons and
shall survive delivery of and payment for the Securities hereunder.
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED
ENTIRELY WITHIN SUCH STATE. Each party hereto hereby irrevocably submits for
purposes of any action arising from this Agreement brought by the other party
hereto to the jurisdiction of the courts of New York State located in the
Borough of Manhattan and the U.S. District Court for the Southern District of
New York. This Agreement may be signed in two or more counterparts with the same
effect as if the signatures thereto and hereto were upon the same instrument.
In case any provision in this Agreement shall be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
The Company and the Underwriters each hereby irrevocably waive any right
they may have to a trial by jury in respect of any claim based upon or arising
out of this Agreement or the transactions contemplated hereby.
Other than the terms concerning Business Combinations set forth in the
Engagement Letter Agreement, dated March 7, 1996, by and between GKM and the
Company, this Agreement embodies the entire agreement and understanding between
the parties hereto and supersedes all prior agreements and understandings
relating to the subject matter hereof. This Agreement may not be amended or
otherwise modified or any provision hereof waived except by an instrument in
writing signed by the Representative and the Company.
Please confirm that the foregoing correctly sets forth the agreement among
the Company and the several Underwriters.
Very truly yours,
SLEEPY'S, INC.
By:
...................................
NAME: HARRY ACKER
TITLE:CHAIRMAN AND CHIEF EXECUTIVE
OFFICER
...................................
HARRY ACKER
Confirmed as of the date first
above mentioned:
GERARD KLAUER MATTISON & CO., LLC
Acting on behalf of itself
and as the Representative of the
other several Underwriters
named in Schedule I hereof.
By: GERARD KLAUER MATTISON & CO., LLC
By:
.......................................
NAME:
TITLE:
19
<PAGE>
<PAGE>
SCHEDULE I
UNDERWRITERS
<TABLE>
<CAPTION>
NUMBER OF
NAMES OF FIRM SHARES
UNDERWRITERS TO BE PURCHASED
- ------------ ---------------
<S> <C>
Gerard Klauer Mattison & Co., LLC................................................................
---------------
Total....................................................................................... 1,375,000
---------------
---------------
</TABLE>
20
<PAGE>
<PAGE>
EXHIBIT A
SLEEPY'S, INC.
PRICE DETERMINATION AGREEMENT
[DATE]
GERARD KLAUER MATTISON & CO., LLC
As Representative of the several Underwriters
c/o Gerard Klauer Mattison & Co., LLC
529 Fifth Avenue
New York, New York 10017
Ladies and Gentlemen:
Reference is made to the Underwriting Agreement, dated ,
199 (the 'Underwriting Agreement'), among Sleepy's, Inc., a New York corporation
(the 'Company'), and the several Underwriters named in Schedule I thereto or
hereto (the 'Underwriters'), for whom GKM is acting as representative (the
'Representative'). The Underwriting Agreement provides for the purchase by the
Underwriters from the Company subject to the terms and conditions set forth
therein, of an aggregate of 1,375,000 shares (the 'Firm Shares') of the
Company's common stock, par value $0.01 per share. This Agreement is the Price
Determination Agreement referred to in the Underwriting Agreement.
Pursuant to Section 1 of the Underwriting Agreement, the undersigned agrees
with the Representative as follows:
1. The initial public offering price per share for the 1,375,000
Shares shall be $ .
2. The purchase price per share for the Firm Shares to be paid by the
several Underwriters shall be $ , representing an amount equal to the
initial public offering price set forth above, less $ per share.
The Company represents and warrants to each of the Underwriters that the
representations and warranties of the Company set forth in Section 3 of the
Underwriting Agreement are accurate as though expressly made at and as of the
date hereof.
As contemplated by the Underwriting Agreement, attached as Schedule I is a
completed list of the several Underwriters, which shall be a part of this
Agreement and the Underwriting Agreement.
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED
ENTIRELY WITHIN SUCH STATE. Each party hereto hereby irrevocably submits for
purposes of any action arising from this Agreement brought by the other party
hereto to the jurisdiction of the courts of New York State located in the
Borough of Manhattan and the U.S. District Court for the Southern District of
New York.
If the foregoing is in accordance with your understanding of the agreement
among the Company and the Underwriters, please sign and return to the Company a
counterpart hereof, whereupon this instrument along with all counterparts and
together with the Underwriting Agreement shall be a
A-1
<PAGE>
<PAGE>
binding agreement among the Company and the Underwriters in accordance with its
terms and the terms of the Underwriting Agreement.
Very truly yours,
SLEEPY'S, INC.
By:
...................................
NAME: HARRY ACKER
TITLE: CHAIRMAN AND CHIEF EXECUTIVE
OFFICER
CONFIRMED AS OF THE DATE FIRST
ABOVE MENTIONED:
GERARD KLAUER MATTISON & CO., LLC
Acting on behalf of itself
and as the Representative
of the other several Underwriters
named in Schedule I hereof.
By: GERARD KLAUER MATTISON & CO., LLC
By:
.......................................
NAME:
TITLE:
A-2
<PAGE>
<PAGE>
EXHIBIT B
REAL ESTATE LEASE FOR
175 CENTRAL AVENUE SOUTH, BETHPAGE, NEW YORK.
[To be attached.]
B-1
<PAGE>
<PAGE>
EXHIBIT C
[DATE]
GERARD KLAUER MATTISON & CO., LLC
As Representative of the several Underwriters
c/o Gerard Klauer Mattison & Co., LLC
529 Fifth Avenue
New York, New York 10017
Ladies and Gentlemen:
In consideration of the agreement of the several Underwriters, for which
Gerard Klauer Mattison & Co., LLC ('GKM') (the 'Representative') intends to act
as Representative, to underwrite a proposed public offering (the 'Offering') of
1,375,000 shares of Common Stock, par value $0.01 per share (the 'Common
Stock'), of Sleepy's, Inc., a New York corporation, the undersigned hereby
agrees that the undersigned shall not, for a period of 180 days after the
commencement of the public offering of such shares (the 'Lock-up Period'),
without the prior written consent of GKM, directly or indirectly, offer to sell,
sell, pledge, contract to sell, grant any option to purchase, or otherwise
dispose (each a 'Disposition') of, or require the Company to file with the
Securities and Exchange Commission a registration statement under the Securities
Act of 1933, as amended, to register, any shares of Common Stock or securities
convertible into or exchangeable for Common Stock or warrants or other rights to
acquire shares of Common Stock of which the undersigned is now, or may in the
future become, the beneficial owner (within the meaning of Rule 13d-3 under the
Securities Exchange Act of 1934, as amended). The foregoing restriction is
expressly agreed to preclude the undersigned from engaging in any hedging or
other transaction during the Lockup Period which is designed to or reasonably
expected to lead to or result in a Disposition of such shares of Common Stock,
even if such shares would be disposed of by someone other than the undersigned.
Such prohibited hedging or other transactions would include, without limitation,
any short sale (whether or not against the box) or any purchase, sale or grant
of any right (including, without limitation, any put or call option with respect
to any such shares or with respect to any security (other than a broad based
market basket or index) that includes, relates to or derives any significant
part of its value from the shares.
[Notwithstanding the foregoing, the undersigned may transfer shares of
Common Stock to an irrevocable trust created pursuant to an agreement
substantially similar to the Irrevocable Trust Agreement dated December 27,
1995, between the undersigned, as Grantor, and David L. Acker, as Trustee;
provided, however, that it shall be a condition to the transfer that the
transferee execute an agreement stating that the transferee is receiving and
holding the shares of Common Stock subject to the provisions of this letter, and
there shall be no further transfer of such shares of Common Stock except in
accordance with the provisions of this letter.](4)
Very truly yours,
By:
...................................
Print Name:
..............................
- ------------
(4) This paragraph to be added to letter to be signed by Harry Acker. Letter to
be signed by GRAT will not include this paragraph.
C-1
<PAGE>
<PAGE>
EXHIBIT D
FORM OF OPINION OF COUNSEL TO THE COMPANY
1. Each of the Company and its Subsidiaries is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation and has full corporate power and authority to
conduct all the activities conducted by it, to own or lease all the assets owned
or leased by it and to conduct its business as described in the Registration
Statement and the Prospectus. The Company is the sole record owner and, to our
knowledge, the sole beneficial owner of all of the capital stock of each of its
Subsidiaries.
2. All of the outstanding shares of Common Stock have been, and the Shares,
when paid for by the Underwriters in accordance with the terms of the Agreement
and when issued pursuant to the Representative's Warrants, will be, duly
authorized, validly issued, fully paid and nonassessable and will not be subject
to any preemptive or similar right under (i) the statutes, judicial and
administrative decisions and the rules and regulations of the governmental
agencies of the State of New York, (ii) the Company's certificate of
incorporation or by-laws or (iii) any instrument, document, contract or other
agreement referred to in, or filed as an exhibit to, the Registration Statement.
Except as described in the Registration Statement or the Prospectus, to the best
of our knowledge, there is no commitment or arrangement to issue, and there are
no outstanding options, warrants or other rights calling for the issuance of,
any share of capital stock of the Company or any Subsidiary to any person or any
security or other instrument that by its terms is convertible into, exercisable
for or exchangeable for capital stock of the Company.
3. No consent, approval, authorization or order of, or any filing or
declaration with, any court or governmental agency or body is required in
connection with the authorization, issuance, transfer, sale or delivery of the
Shares by the Company, in connection with the execution, delivery and
performance of the Agreement, the Price Determination Agreement, the
Representative's Warrant Agreement, the Escrow Agreement and the Lease
(collectively the 'Transaction Agreements') by the Company or BDC Realty Corp.,
as the case may be, or in connection with the taking by the Company or BDC
Realty Corp., as the case may be, of any action contemplated thereby or, if so
required, all such consents, approvals, authorizations and orders (specifying
the same) have been obtained and are in full force and effect, except such as
have been obtained under the Act and the Rules and Regulations and such as may
be required under state securities or 'Blue Sky' laws or by the by-laws and
rules of the NASD in connection with the purchase and distribution by the
Underwriters of the Shares to be sold by the Company.
4. The authorized, issued and outstanding capital stock of the Company is
as set forth in the Registration Statement and the Prospectus under the caption
'Capitalization.' The description of the Common Stock contained in the
Prospectus is complete and accurate in all material respects. The form of
certificate used to evidence the Common Stock is in due and proper form and
complies with all applicable statutory requirements.
5. The Registration Statement and the Prospectus comply in all material
respects as to form with the requirements of the Act and the Rules and
Regulations (except that we express no opinion as to financial statements,
schedules and other financial data contained in the Registration Statement or
the Prospectus).
6. To the best of our knowledge, any instrument, document, lease, license,
contract or other agreement (collectively, 'Documents') required to be described
or referred to in the Registration Statement or the Prospectus has been properly
described or referred to therein and any Document required to be filed as an
exhibit to the Registration Statement has been filed as an exhibit thereto or
has been incorporated as an exhibit by reference in the Registration Statement,
and no default exists in the due performance or observance of any material
obligation, agreement, covenant or condition contained in any Document filed or
required to be filed as an exhibit to the Registration Statement.
7. All descriptions in the Prospectus of statutes, regulations or legal or
governmental proceedings are accurate and fairly present the information
required to be shown.
D-1
<PAGE>
<PAGE>
8. To the best of our knowledge, the Company, its Subsidiaries and BDC
Realty Corp. have obtained all authorizations, approvals, orders, licenses,
certificates, franchises and permits of and from all governmental or regulatory
officials and bodies (including, without limitation, those with jurisdiction
over environmental or similar matters) necessary to own or lease their
respective properties and to conduct their respective businesses as described in
the Prospectus. To the best of our knowledge, the Company, its Subsidiaries and
BDC Realty Corp. have been, and are currently, conducting their respective
businesses in compliance with all such approvals, orders, licenses,
certificates, franchises and permits. To the best of our knowledge, neither the
Company, any of its Subsidiaries nor BDC Realty Corp. has received any notice of
any proceedings relating to the revocation or modification of any such
authorization, approval, order, license, certificate, franchise or permit which,
singly or in the aggregate, if the subject of an unfavorable decision, ruling or
finding, would adversely affect the general affairs, business, business
properties, earnings, position, value, properties, management, condition
(financial or otherwise), operations or results of operations of the Company and
its Subsidiaries, taken as a whole.
9. To the best of our knowledge, the Company is not in violation of, or in
default with respect to, any law, rule, regulation (including, without
limitation, those relating to the resale of returned bedding), order, judgment
or decree under the laws of the United States or of any State, except as may be
described in the Prospectus or such as in the aggregate do not now have and will
not in the future have a material adverse effect upon the operations, business
or assets of the Company and the Subsidiaries, taken as a whole.
10. To the best of our knowledge, except as disclosed in the Registration
Statement or the Prospectus, no person or entity has the right to require the
registration under the Act of shares of Common Stock or other securities of the
Company by reason of the filing or effectiveness of the Registration Statement.
11. Each of the Company and BDC Realty Corp. has full corporate power and
authority to enter into the Transaction Agreements to which it is a party, and
such Transaction Agreements have been duly authorized, executed and delivered by
the Company and BDC Realty Corp., are valid and binding agreements of the
Company and BDC Realty Corp. and, except for the indemnification and
contribution provisions of the Agreement, as to which we express no opinion, are
enforceable against the Company and BDC Realty Corp. in accordance with the
terms thereof.
12. No consent, approval, authorization or order of, or any filing or
declaration with, any court or governmental agency or body is required in
connection with the execution, delivery and performance of the Agreement, the
Escrow Agreement and Harry Acker's Recovery Waiver (collectively the 'Acker
Agreements') by Harry Acker or in connection with the taking by Harry Acker of
any action contemplated thereby or, if so required, all such consents,
approvals, authorizations and orders (specifying the same) have been obtained
and are in full force and effect.
13. Harry Acker has full right, power and authority to enter into and
perform his obligations under the Acker Agreements. The Acker Agreements have
been duly executed and delivered by Harry Acker, are valid and binding
agreements of Harry Acker and, except for the indemnification and contribution
provisions of the Agreement, as to which we express no opinion, are enforceable
against Harry Acker in accordance with the terms thereof
14. The execution and delivery by the Company of, and the performance by
the Company of its agreements in, the Transaction Agreements do not and will not
(i) violate the certificate of incorporation or by-laws of the Company, (ii)
breach or result in a default under, cause the time for performance of any
obligation to be accelerated under, or result in the creation or imposition of
any lien, charge or encumbrance upon any of the assets of the Company or any of
its Subsidiaries pursuant to the terms of, (x) any indenture, mortgage, deed of
trust, loan agreement, bond, debenture, note agreement, capital lease or other
evidence of indebtedness of which we have knowledge, (y) any voting trust
arrangement or any contract or other agreement to which the Company is a party
that restricts the ability of the Company to issue securities and of which we
have knowledge or (z) any Document filed as an exhibit to the Registration
Statement, (iii) breach or otherwise violate any existing obligation of the
Company under any court or administrative order, judgment or decree of which we
have knowledge or (iv) violate applicable provisions of any statute or
regulation in the States of New York, New Jersey, Connecticut or Florida or of
the United States.
D-2
<PAGE>
<PAGE>
15. The execution and delivery by Harry Acker of, and the performance by
Harry Acker of his agreements in, the Acker Agreements do not and will not (i)
breach or result in a default under, cause the time for performance of any
obligation to be accelerated under, or result in the creation or imposition of
any lien, charge or encumbrance upon any of the assets of the Company or any of
its Subsidiaries pursuant to the terms of, (x) any indenture, mortgage, deed of
trust, loan agreement, bond, debenture, note agreement, capital lease or other
evidence of indebtedness of which we have knowledge, (y) any other contract to
which Harry Acker or the Company is a party that restricts the ability of the
Company to issue securities and of which we have knowledge or (z) any Document
filed as an exhibit to the Registration Statement, (ii) breach or otherwise
violate any existing obligation of Harry Acker or the Company under any court or
administrative order, judgment or decree of which we have knowledge or (iii)
violate applicable provisions of any statute or regulation in the States of New
York, New Jersey, Connecticut or Florida or of the United States.
16. Delivery of certificates for the Shares or Warrant Shares will transfer
valid and marketable title thereto to each Underwriter that has purchased such
Shares or Warrant Shares in good faith and without any notice of any adverse
claim with respect thereto.
17. Each of the Company and its Subsidiaries has good and marketable title
to, or valid and enforceable leasehold estates in, all real and personal
property stated in the Registration Statement and Prospectus to be owned or
leased by it, in each case, free and clear of all liens, charges, claims,
encumbrances, pledges, security interests, defects or restrictions or equities
of any kind whatsoever, other than those referred to in the Prospectus, and of
liens for taxes not yet due and payable.
18. The Company is not an 'investment company' or an 'affiliated person'
of, or 'promoter' or 'principal underwriter' for, an 'investment company,' as
such terms are defined in the Investment Company Act of 1940, as amended.
We hereby confirm to you that we have been advised by the Commission that
the Registration Statement has become effective under the Act and that no order
suspending the effectiveness of the Registration Statement has been issued and
no proceeding for that purpose has been instituted or is threatened, pending or
contemplated.
We hereby further confirm to you that there are no actions, suits,
proceedings or investigations pending or, to our knowledge, overtly threatened
in writing against the Company or any Subsidiary or any of their respective
officers or directors in their capacities as such, or Harry Acker, before or by
any court, governmental agency or arbitrator which (i) seek to challenge the
legality or enforceability of the Transaction Agreements or the Acker
Agreements, (ii) seek to challenge the legality or enforceability of any of the
Documents filed, or required to be filed, as exhibits to the Registration
Statement, (iii) seek damages or other remedies with respect to any of the
Documents filed, or required to be filed, as exhibits to the Registration
Statement, (iv) except as set forth in or contemplated by the Registration
Statement and the Prospectus, seek money damages in excess of $50,000 or seek to
impose criminal penalties upon the Company, any of its Subsidiaries or any of
their respective officers or directors in their capacities as such and of which
we have knowledge, (v) seek to enjoin any of the business activities of the
Company or any of its Subsidiaries or the transactions described in the
Prospectus and of which we have knowledge, (vi) question the validity of the
capital stock, (vii) in any of which there is a reasonable possibility of an
adverse decision which may result in a material change in the general affairs,
business, business prospects, earnings, position, value, properties, management,
condition (financial or otherwise), operations or results of operations of the
Company and its Subsidiaries, taken as a whole, or (viii) are required to be
disclosed in the Registration Statement and Prospectus but are either not
disclosed, or not disclosed accurately in all material respects.
We have participated in the preparation of the Registration Statement and
the Prospectus and, without assuming any responsibility for the accuracy,
completeness or fairness of the statements contained in the Registration
Statement or the Prospectus or in any amendment or supplement thereto, nothing
has come to our attention that causes us to believe that, both as of the
Effective Date and as of the Closing Date and the Option Closing Date, the
Registration Statement, or any amendment thereto, contained or contains any
untrue statement of a material fact or omitted or omits to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading or that any Prospectus or any amendment or supplement thereto, at the
time such Prospectus was issued, at the
D-3
<PAGE>
<PAGE>
time any such amended or supplemented Prospectus was issued, at the Closing Date
and the Option Closing Date, contained or contains any untrue statement of a
material fact or omitted or omits to state a material fact necessary in order to
make the statements therein not misleading (except that we express no opinion as
to financial statements, schedules and other financial data contained in the
Registration Statement or the Prospectus).
The foregoing opinion is subject to the qualification that the
enforceability of the Transaction Agreements and the Acker Agreements may be:
(i) subject to bankruptcy, insolvency, reorganization, moratorium or similar
laws affecting creditors' rights generally; and (ii) subject to general
principles of equity (regardless of whether such enforceability is considered in
a proceeding at law or in equity), including principles of commercial
reasonableness or conscionability and an implied covenant of good faith and fair
dealing.
This letter is furnished by us solely for your benefit in connection with
the transactions referred to in the Transaction Agreements and the Acker
Agreements and may not be circulated to, or relied upon by, any other person,
except that this letter may be relied upon by your counsel in connection with
the opinion letter to be delivered to you pursuant to Section 5(g) of the
Agreement.
In rendering the foregoing opinion, counsel may rely, to the extent they
deem such reliance proper, on the opinions (in form and substance reasonably
satisfactory to Underwriters' counsel) of other counsel reasonably acceptable to
Underwriters' counsel as to matters governed by the laws of jurisdictions other
than the United States and the State of New York, and as to matters of fact,
upon certificates of officers of the Company and of government officials;
provided that such counsel shall state that the opinion of any other counsel is
in form satisfactory to such counsel. Copies of all such opinions and
certificates shall be furnished to counsel to the Underwriters on the Closing
Date.
D-4
<PAGE>
<PAGE>
EXHIBIT 3.2
SLEEPY'S, INC.
BY-LAWS
ARTICLE I
SHAREHOLDERS
1.1 Time of Shareholder Meetings
The annual meeting of shareholders of the Company for the
election of directors and for the transaction of such other business as may
properly come before the meeting shall be held on such date and at such time and
place as designated by the Board of Directors, or if no such designation is
made, at 10:00 A.M. on the fifteenth day of the fifth month following the close
of the Company's fiscal year (or if that is a legal holiday, then on the next
succeeding business day at 10:00 a.m.).
Special meetings of shareholders shall be held on the date
fixed by the Board of Directors or the Chairman of the Board or the Chief
Operating Officer or the shareholders of the Company calling the special meeting
of shareholders pursuant to Section 1.3.
1.2 Place of Shareholder Meetings
Annual meetings and special Meetings of shareholders shall be
held at such place, within or without the State of New York, as the Board of
Directors, or in the case of special meetings of shareholders, at such place as
the Board of Directors or the Chairman of the Board of Directors or the Chief
Operating Officer of the Company calling the special meeting of shareholders
pursuant to Section 1.3, may from time to time fix, either by resolution or by
inclusion in notice of meeting. In the event of a failure to fix such place, the
meeting shall be held at the office of the Company in the State of New York.
<PAGE>
<PAGE>
1.3 Calling of Shareholder Meetings
Annual meetings of shareholders will be called by the Board of
Directors, by an officer instructed by the Board of Directors to call meetings
or by the Chairman of the Board of Directors or Chief Operating Officer of the
Company. Special meetings of shareholders may be called by the Board of
Directors, the Chairman of the Board of Directors or Chief Operating Officer of
the Company or at the request in writing by shareholders owning a majority of
the shares of capital stock of the Company issued and outstanding and entitled
to vote.
1.4 Notice of Shareholder Meetings, Waiver
The notice of all meetings shall be written or printed, shall
state the place, date, and hour of the meeting, and in case of a special meeting
of shareholders, shall indicate the purpose or purposes for which the meeting is
called. A copy of the notice of all meetings shall be given, personally or by
mail, not less than ten days nor more than fifty days before the date of the
meeting, to each shareholder of record entitled to vote at such meeting, and, if
mailed, it shall be directed to such shareholder at his record address or at
such other address which he may have furnished in writing to the Secretary of
the Company. If action is proposed to be taken that might entitle shareholders
to payment for their shares, the notice shall include a statement of that
purpose and to that effect. If a meeting is adjourned to another time or place,
and, if any announcement of the adjourned time or place is made at the meeting,
it shall not be necessary to give notice of the adjourned meeting unless the
directors, after adjournment, fix a new record date for the adjourned meeting.
Notice of any meeting need not be given to any shareholder who
submits a signed waiver of notice before or after the meeting. The attendance of
a shareholder at a meeting without
-2-
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<PAGE>
protesting the lack of notice of such meeting prior to the conclusion of the
meeting, shall constitute a waiver of notice by him.
1.5 Record Date for Shareholders
For the purpose of determining the shareholders entitled to
notice of or to vote at any meeting of shareholders or any adjournment thereof,
or to express consent to or dissent from any proposal without a meeting, or for
the purpose of determining shareholders entitled to receive payment of any
dividend or the distribution or allotment of any rights or evidences of
interests arising out of any change, conversion, or exchange of capital stock,
or for the purpose of any other action, the Board of Directors may fix, in
advance, a date as the record date for any such determination of shareholders.
Such date shall not be more than fifty days nor less than ten days before the
date of such meeting, nor more than fifty days prior to any other action. When a
determination of shareholders of record entitled to notice of or to vote at any
meeting has been made as provided in this Section 1.5, such determination shall
apply to any adjournment thereof, unless the Board of Directors fix a new record
date under this Section 1.5 for the adjourned meeting. Only shareholders of
record on a record date fixed for determining shareholders entitled to receive
payment of any dividend or the distribution or allotment of any rights or
evidences of interests arising out of any change, conversion, or exchange of
capital stock, shall be entitled to receive such dividend, rights or interests.
1.6 Conduct of Meetings
Meetings of the shareholders shall be presided over by the
Chairman of the Board, or in his absence, by the Chief Operating Officer, or in
the Chief Operating Officer's absence, by the President, or in the President's
absence, by any Vice President as directed by the Chairman of the Board or the
Chief Operating Officer. The Secretary of the Company, or in his absence, any
Assistant Secretary selected by the chairman of the meeting, shall act as
secretary of the meeting.
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<PAGE>
1.7 Proxy Representation
Every shareholder may authorize another person or persons to
act for him by proxy in all matters in which a shareholder is entitled to
participate, whether by waiving notice of any meeting, voting or participating
at a meeting or expressing consent or dissent without a meeting. Every proxy
must be in writing and signed by the shareholder or his attorney-in-fact. No
proxy shall be valid after the expiration of eleven months from the date thereof
unless otherwise provided in the proxy. Every proxy shall be revocable at the
pleasure of the shareholder executing it, except as otherwise provided by the
Business Corporation Law of the State of New York.
1.8 Quorum
The holders of record of a majority of the shares of stock
issued and outstanding and entitled to vote thereat, present in person or by
proxy, shall be requisite and shall constitute a quorum at each meeting of
shareholders for the transaction of business, except as otherwise provided by
law, by the Certificate of Incorporation or by these By-Laws; provided that,
when any specified action is required to be voted upon by a class of stock
voting as a class, the holders of a majority of the shares of such class shall
be requisite and shall constitute a quorum for the transaction of such specified
action. When a quorum is once present to organize a meeting, it is not broken by
the subsequent withdrawal of any shareholders. The shareholders present may
adjourn the meeting despite the absence of a quorum. At the meeting to which
such adjourned meeting is reconvened, any business may be transacted which might
have been transacted at the meeting as first convened had there been a quorum.
1.9 Voting
Each shareholder entitled to vote on any action proposed at a
meeting of shareholders shall be entitled to one vote in person or by proxy for
each share of voting stock held of record by
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<PAGE>
him, unless otherwise provided in the Certificate of Incorporation. The vote for
directors shall be by vote of shareholders represented either in person or by
proxy at the meeting, and the election of each director shall be decided by a
plurality vote. Except as otherwise provided by law, by the Certificate of
Incorporation, by other certificate filed pursuant to law or by these By-Laws,
votes on any other matters coming before any meeting of shareholders shall be
decided by the vote of the holders of a majority of the shares represented at
such meeting, in person or by proxy, and entitled to vote on the specific
matter. Except as required by law, by the Certificate of Incorporation, by other
certificate filed pursuant to law or by these By-Laws, the chairman presiding at
any meeting of shareholders may rule on questions of order or procedure coming
before the meeting or submit such questions to the vote of the meeting, with
each shareholder entitled to one vote in person or by proxy for each share of
voting stock held of record by him, which vote may at the direction of the
chairman at the meeting be by ballot.
1.10 Written Consent of Shareholders
Any action that may be taken by vote may be taken without a
meeting on written consent, setting forth the action so taken, signed by the
holders of all the outstanding shares entitled to vote thereon or signed by such
lesser number of holders as may be provided for in the Certificate of
Incorporation.
ARTICLE II
BOARD OF DIRECTORS
2.1 Qualifications and Number
Each director shall be at least 21 years of age. A director
need not be a shareholder, a citizen of the United States, or a resident of the
State of New York. The number of directors
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constituting the entire Board of Directors shall consist of not less than three
(3) nor more than seven (7) directors (except that where all of the shares are
owned beneficially and of record by less than three (3) shareholders, the number
of directors may be less than three (3) but not less than the number of
shareholders), the exact number to be determined from time to time by resolution
of the Board of Directors; provided, however, that the number of directors shall
be increased beyond the foregoing limit, to the extent required, in the event
that (and for so long as) the holders of any Preferred Stock of the Company,
voting as a separate class or series under any provisions of the Certificate of
Incorporation, shall be entitled to elect any directors.
2.2 Election and Term
At each annual meeting of shareholders, the shareholders shall
elect directors to hold office until the next annual meeting. Each director
shall hold office until the expiration of the term for which he is elected and
until his successor has been elected and qualified, or until his prior
resignation or removal.
2.3 Vacancies
Any vacancy in the Board of Directors, whether caused by
resignation, death, increase in the number of directors, disqualification or
otherwise, may be filled by a majority of the directors then in office after the
vacancy has occurred, although less than a quorum (except that a vacancy created
by the removal of a director by shareholders for cause or without cause may be
filled by the shareholders at the meeting at which the director is removed or,
if not so filled, then by the remaining directors) and provided that any
vacancies with respect to directors elected by holders of any Preferred Stock of
the Company voting as a separate class or series under any provisions of the
Certificate of Incorporation shall be filled as provided in the provisions of
the Certificate of Incorporation relating to any such Preferred Stock. Any
director elected by the Board to fill a
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vacancy shall hold office until the next meeting of shareholders at which the
election of directors is in the regular order of business, and until his
successor has been elected and qualified. At such meeting, if the term of the
class in which such director has been elected does not then expire, the
shareholders shall elect a director to fill the unexpired term.
2.4 Time of Board Meetings
An annual meeting of the Board shall be held in each year
immediately following the annual meeting of shareholders or if such meeting be
adjourned, the final adjournment thereof at the same place as such meeting of
shareholders. Regular meetings of the Board may be held without notice at such
time and place as shall from time to time be determined by resolution of the
Board.
Special meetings of the Board may be called pursuant to the
provision of Section 2.6 hereof.
2.5 Place of Board Meetings
Regular and special meetings of the Board, except as otherwise
provided in the Company's Certificate of Incorporation or in these By-laws,
shall be held at such place within or without the State of New York as shall be
fixed by the Board. The annual meeting of a newly elected Board shall be held at
the same place where the meeting of the shareholders at which the election of
the new Board is held.
2.6 Calling of Board Meetings
No call shall be required for the annual or any regular
meetings of the Board for which the time and place have been fixed. Special
Meetings of the Board may be called by the Chairman of the Board, the Chief
Operating Officer, or by the Secretary on written request of two directors.
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2.7 Notice of Board Meetings
No notice shall be required for the annual meeting of a newly
elected Board and for regular meetings for which the time and place have been
fixed. Except as otherwise provided by law, notice of each special meeting of
the Board shall be mailed to each director, addressed to him at his residence or
usual place of business, at least five days before the day on which such meeting
is to be held, or shall be sent addressed to him at such place by telegraph,
cable or wireless, or be delivered personally or by telephone, not later than 48
hours before the time on which such meeting is to be held. The notice of any
meeting need not specify the purpose of the meeting. Any requirement of
furnishing a notice shall be waived by any director who signs a waiver of notice
before or after the meeting, or who attends the meeting without protesting,
prior thereto or at its commencement, the lack of notice to him.
2.8 Quorum and Action
A majority of the entire Board shall constitute a quorum
except when a vacancy or vacancies prevent such majority, whereupon a majority
of the directors then in office shall constitute a quorum, provided such
majority shall constitute at least one-third of the entire Board of Directors. A
majority of the directors present, whether or not a quorum is present, may
adjourn a meeting to another time and place. Notice need not be given of any
adjourned meeting. Except as otherwise provided herein, the act of the Board
shall be the act, at a meeting duly assembled, by vote of a majority of the
directors present at the time of the vote, a quorum being present at such time.
2.9 Chairman of the Meeting
The Chairman of the Board or, in his absence or inability to
act, the Chief Operating Officer of the Company or, in his absence or inability
to act, another director chosen by a majority of the directors present shall act
as chairman of meetings of the Board and preside at all such
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meetings. The Secretary of the Company or, in his absence or inability to act,
any person appointed by the chairman of the meeting, shall act as secretary of
the meeting.
2.10 Resignation or Removal of Directors
Any director may resign at any time and such resignation shall
take effect upon receipt thereof by the Chairman of the Board, the Chief
Operating Officer or the Secretary unless otherwise specified in the
resignation. No director of the Company shall be removed from office as a
director except (i) for cause by the vote of (A) the holders of at least a
majority of the outstanding shares of capital stock of the Company entitled to
vote at an election of directors (considered for this purpose as one class) or
(B) a majority of the entire Board of Directors or (ii) without cause by the
vote of the holders of at least a majority of the outstanding shares of capital
stock of the Company entitled to vote at an election of directors (considered
for this purpose as one class), provided that this provision shall not apply to
any directors elected by holders of any Preferred Stock voting as a separate
class or series under any provisions of the Certificate of Incorporation, which
directors may be removed only by the vote of the holders of at least a majority
of the outstanding shares of such Preferred Stock.
2.11 Committees
By resolution adopted by a majority of the entire Board of
Directors, the directors may designate from their number three or more
directors, to constitute an Executive Committee and other committees, each of
which, to the extent provided in the resolution designating it, shall have the
authority of the Board of Directors with the exception of any authority the
delegation of which is prohibited by the New York Business Corporation Law. All
committees so appointed shall keep regular minutes of the business transacted at
their meeting. Each committee established by the Board
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of Directors shall serve at the pleasure of the Board of Directors, which may
fill vacancies in any such committee.
2.12 Action in Lieu of Meeting
Any action required or permitted to be taken by the Board or
any committee thereof may be taken without a meeting if all members of the Board
or the committee consent in writing to the adoption of a resolution authorizing
the action. The resolution and the written consents thereto shall be filed with
the minutes of the proceedings of the Board or committee.
2.13 Telephone Participation
One or more members of the Board or any committee thereof may
participate in a meeting of the Board or committee by means of a telephone or
similar communications equipment allowing all persons participating in the
meeting to hear each other at the same time. Participation by such means shall
constitute presence in person at a meeting.
ARTICLE III
OFFICERS
3.1 Election
The Board of Directors at its first meeting after the annual
meeting of shareholders, or as soon as practicable after the election of
directors in each year, shall elect or appoint from their number a Chairman of
the Board of Directors. The Board of Directors shall elect or appoint a Chief
Operating Officer, President, a Secretary and a Treasurer, none of whom need be
members of the Board, and may also elect or appoint one or more Vice Presidents
and such other officers as they may deem proper setting forth the powers and
duties of said officers in the resolution by which they are
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elected or appointed. Any two of the aforesaid offices, except those of
President and Vice President, or President and Secretary, may be held by the
same person.
3.2 Term of Office
Each officer shall hold office at the pleasure of the Board.
The Board of Directors may remove any officer for cause or without cause. Any
officer may resign his office at any time, such resignation to take effect upon
receipt of written notice thereof by the Company unless otherwise specified in
the resignation. If the office of any officer becomes vacant for any reason, the
vacancy may be filled by the Board.
3.3 The Chairman of the Board
The Chairman of the Board of Directors shall be the chief
executive officer of the Company and shall have the general and active
supervision and direction over the other officers, agents and employees and
shall see that their duties are properly performed. He shall, if present,
preside at each meeting of the shareholders and of the Board and shall be an ex
officio member of all committees of the Board. He shall perform all duties
incident to the office of Chairman of the Board and chief executive officer and
such other duties as may from time to time be assigned to him by the Board or
these By-Laws.
3.4 The Chief Operating Officer
The Chief Operating Officer shall have general and active
supervision and direction over the business and affairs of the Company and over
its several officers, subject, however, to the control of the Board. In the case
of the absence or inability to act of the Chairman of the Board, the Chief
Operating Officer shall perform the duties of the Chairman of the Board and when
so acting shall have all the powers of, and be subject to all the restrictions
upon, the Chairman of the Board.
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He shall perform all duties incident to the office of Chief Operating Officer
and such other duties as from time to time may be assigned to him by the Board,
the Chairman of the Board or these By-Laws.
3.5 The President and Vice Presidents
The President and each Vice President shall have such powers
and perform such duties as from time to time may be assigned to them,
respectively, by the Board.
3.6 The Treasurer
The Treasurer shall
(a) have charge and custody of, and be responsible for, all
the funds and securities of the Company;
(b) keep full and accurate accounts of receipts and
disbursements in books belonging to the Company;
(c) cause all moneys and other valuables to be deposited to
the credit of the Company in such depositories as may be designated by
the Board;
(d) receive, and give receipts for, moneys due and payable to
the Company from any source whatsoever;
(e) disburse the funds of the Company and supervise the
investment of its funds as ordered or authorized by the Board, taking
proper vouchers therefor; and
(f) in general, have all the powers and perform all the duties
incident to the office of Treasurer and such other duties as from time
to time may be assigned to him by the Board, the Chairman of the Board
or the Chief Operating Officer.
3.7 The Secretary. The Secretary shall
(a) keep or cause to be kept, in one or more books provided
for the purpose, the minutes of all meetings of the Board, the
committees of the Board and the shareholders;
(b) see that all notices are duly given in accordance with the
provisions of these By-laws and as required by law;
(c) be custodian of the records and the seal of the Company
and affix and attest the seal to all share certificates of the Company
(unless the seal of the Company on such certificates shall be a
facsimile, as hereinafter provided) and affix and attest
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the seal to all other documents to be executed on behalf of the
Company under its seal;
(d) see that the books, reports, statements, certificates and
other documents and records required by law to be kept and filed are
properly kept and filed; and
(e) in general, have all the powers and perform all the duties
incident to the office of Secretary and such other duties as from time
to time may be assigned to him by the Board, the Chairman of the Board
or the Chief Operating Officer.
3.8 Duties of Officers may be Delegated
In the case of the absence of any officer, or for any other
reason that the Board may deem sufficient, the Chairman of the Board, the Chief
Operating Officer, the President or the Board may delegate for the time being
the powers or duties of such officer to any other officer or to any director.
ARTICLE IV
SHARE CERTIFICATES
4.1 Issuance of Share Certificates
The capital stock of the Company shall be represented by
certificates signed by the Chairman of the Board, the President or a Vice
President and by the Secretary or an Assistant Secretary or the Treasurer or any
Assistant Treasurer and sealed with the seal of the Company. Such seal may be a
facsimile, engraved or printed and where any such certificate is signed by a
transfer agent or transfer clerk and by a registrar, the signatures of any
officers appearing thereon may be facsimiles, engraved or printed.
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4.2 Lost Share Certificates
The Board of Directors may issue or cause to be issued new or
duplicate certificates for lost, stolen or destroyed share certificates of the
Company upon written notification of the facts of such loss, theft or
destruction and subject, in the discretion of the Board of Directors, to the
deposit of a bond or other indemnity by the shareholder seeking the new
certificate in such form and with such sureties and in such sum as the Board may
require.
4.3 Transfers of Shares
Transfers of shares shall be made only on the share transfer
books of the Company, and, except in the case of any such certificate which has
been lost, stolen or destroyed, such transfer shall only be made upon surrender
to the Company of a certificate for shares for cancellation duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer. Upon the issue of a new certificate to the person entitled thereto,
the Company shall cancel the old certificate and record the transaction upon its
books.
4.4 Regulations
Except to the extent that the exercise of such power shall be
prohibited or circumscribed by these By-Laws, by the Certificate of
Incorporation, or other certificate filed pursuant to law, or by statute, the
Board of Directors shall have power to make such rules and regulations
concerning the issuance, registration, transfer and cancellation of share
certificates as it shall deem appropriate.
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ARTICLE V
SEAL
The seal of the Company shall be circular in form, shall bear
the name of the Company and shall contain in the center the year in which the
Company was incorporated and the words "Corporate Seal", "New York".
ARTICLE VI
FISCAL YEAR
The fiscal year of the Company shall end on such date and
shall consist of such accounting periods as may be fixed by the Board.
ARTICLE VII
VOTING SECURITIES
Unless otherwise directed by the Board, the Chairman of the
Board, or, in the case of his absence or inability to act, the Chief Operating
Officer, or, in the case of the Chief Operating Officer's absence or inability
to act, the President, or, the President's absence or inability to act, the Vice
Presidents, in order of their seniority, shall have full power and authority on
behalf of the Company to attend and to act and to vote, or to execute in the
name or on behalf of the Company a proxy authorizing an agent or
attorney-in-fact for the Company to attend and vote at any meetings of security
holders of corporations in which the Company may hold securities, and at such
meetings he or his duly authorized agent or attorney-in-fact shall possess and
may exercise any and all rights and powers incident to the ownership of such
securities and which, as the owner thereof, the Company might have possessed and
exercised if present. The Board by resolution from time to time may confer like
power upon any other person or persons.
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ARTICLE VIII
BOOKS AND RECORDS
The Company shall keep correct and complete books and records
of account and shall keep minutes of the proceedings of the shareholders, the
Board of Directors, and any committee which the directors may appoint, and shall
keep at the office of the Company in the State of New York or at the office of
the transfer agent or registrar, if any, in said State, a record containing the
names and addresses of all shareholders, the number of shares held by each, and
the dates when they respectively became the owners of record thereof. Any of the
foregoing books, minutes, or records may be in written form or in any other form
capable of being converted into written form within a reasonable time.
ARTICLE IX
INDEMNIFICATION OF DIRECTORS, OFFICERS AND EMPLOYEES
9.1 General
The Company shall indemnify any officer or director of the
Company made, or threatened to be made, a party to an action or proceeding,
whether civil, criminal, administrative or investigative and including an action
by or in the right of a Company or by or in the right of any other corporation
of any type or kind, domestic or foreign, or any partnership, joint venture,
trust, employee benefit plan or other enterprise, which any director or officer
of the Company served in any capacity at the request of the Company (any such
action or proceeding being hereinafter referred to as an "Action"), by reason of
the fact that he, his testator or intestate was a director or officer of the
Company, or served such other corporation, partnership, joint venture, trust,
employee benefit plan
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or other enterprise in any capacity, against judgments, fines, amounts paid in
settlement and reasonable expenses, including attorney's fees incurred as a
result of such Action, or any appeal therein, provided that no indemnification
shall be made to or on behalf of any director or officer if a judgment or other
final adjudication adverse to such director or officer establishes that (i) his
or her acts were committed in bad faith or were the result of active and
deliberate dishonesty and, in either case, were material to the cause of action
so adjudicated, or (ii) he or she personally gained in fact a financial profit
or other advantage to which he or she was not legally entitled. The Company may
indemnify and advance expenses to any other person to whom the Company is
permitted to provide indemnification or the advancement of expenses to the
fullest extent permitted by applicable law, whether pursuant to rights granted
pursuant to, or provided by, the New York Business Corporation Law or other law,
or other rights create by an agreement approved by the Board, or resolution of
shareholders or the Board, and the adoption of any such resolution or the
entering into of any such agreement approved by the Board is hereby authorized.
9.2 Expense Advances
The Company shall, from time to time, advance to any director
or officer of the Company expenses (including attorneys' fees) incurred in
defending any Action in advance of the final disposition of such Action;
provided that no such advancement shall be made until receipt of any undertaking
by or on behalf of such director or officer to repay such amount as and to the
extent required by law.
9.3 Procedure for Indemnification
Indemnification and advancement of expenses under this Article
IX shall be made promptly and, in any event, no later than thirty (30) days in
the case of indemnification and fifteen (15) days in the case of expense
advancement following the request of the person entitled to such
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indemnification or advancement of expenses hereunder, as the case may be. The
Board shall promptly (but, in any event, within such thirty (30) or fifteen (15)
day period, as the case may be) take all such actions (including, without
limitation, any authorizations and findings required by law) as may be necessary
to indemnify, and advance expenses to, each person entitled thereto pursuant to
this Article IX. If the Board is or may be disqualified by law from granting any
authorization, making any finding or taking any other action necessary or
appropriate for such indemnification or advancement, then the Board shall use
its best efforts to cause appropriate person(s) to promptly so authorize, find
or act.
9.4 Insurance
The Company shall be permitted to purchase and maintain
insurance for its own indemnification and that of its directors and officers and
any other proper persons to the maximum extent permitted by law.
9.5 Non-Exclusivity
Nothing contained in this Article IX shall limit the right to
indemnification and advancement of expenses to which any person would be
entitled by law in the absence of this Article IX, or shall be deemed exclusive
of any other rights to which those seeking indemnification or advancement of
expenses may have or hereafter be entitled under any law, provision of the
Certificate of Incorporation, By-Law, agreement approved by the Board, or
resolution of shareholders or directors; and the adoption of any such resolution
or entering into of any such agreement approved by the Board is hereby
authorized.
9.6 Continuity of Rights
The indemnification and advancement of expenses provided by,
or granted pursuant to, this Article IX shall (i) continue as to a person who
has ceased to serve in a capacity which would
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entitle such person to indemnification or advancement of expenses pursuant to
this Article IX with respect to acts or omissions occurring prior to such
cessation, (ii) inure to the benefit of the heirs, executors and administrators
of a person entitled to the benefits of this Article IX, (iii) apply with
respect to acts or omissions occurring prior to the adoption of this Article IX
to the fullest extent permitted by law and (iv) survive the full or partial
repeal or restrictive amendment hereof with respect to events occurring prior
thereto.
9.7 Enforcement
The right to indemnification and advancement of expenses
provided by this Article IX shall be enforceable by any person entitled to
indemnification or advancement of expenses hereunder in any court of competent
jurisdiction. In such an enforcement action, the burden shall be on the Company
to prove that the indemnification and advancement of expenses being sought are
not appropriate. Neither the failure of the Company to determine whether
indemnification or the advancement of expenses is proper in the circumstances
nor an actual determination by the Company thereon adverse to the person seeking
such indemnification or advancement shall constitute a defense to the action or
create a presumption that such person is not so entitled. Without limiting the
scope of section 9.1, (a) a person who has been successful on the merits or
otherwise in the defense of an Action shall be entitled to indemnification as
authorized in section 9.1 and (b) the termination of any Action by judgment,
settlement, conviction or plea of nolo contendere or its equivalent shall not in
itself create a presumption that such person has not met the standard of conduct
set forth in section 9.1. Such person's reasonable expenses incurred in
connection with successfully establishing such person's right to indemnification
or advancement or expenses, in whole or in part, in any such proceeding shall
also be indemnified by the Company.
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9.8 Severability
If this Article IX or any portion hereof shall be invalidated
on any ground by any court of competent jurisdiction, then the Company
nevertheless shall indemnify and advance expenses to each person otherwise
entitled thereto to the fullest extent permitted by any applicable portion of
this Article IX that shall not have been invalidated.
ARTICLE X
AMENDMENT
Except as otherwise provided in the Company's Certificate of
Incorporation, these ByLaws may be amended, altered, changed, added to or
repealed by the affirmative vote of the holders of a majority of the outstanding
shares of capital stock of the Company entitled to vote at an election of
directors (considered for this purpose as one class).
Except as otherwise provided in the Company's Certificate of
Incorporation, the Board of Directors, at any regular or special meeting, by a
majority vote of the whole Board, may amend, alter, change, add to or repeal
these By-Laws, provided that if any By-Law regulating an impending election of
directors is adopted or amended or repealed by the Board, there shall be set
forth in the notice of the next shareholders meeting for the election of
directors, the By-Laws so adopted or amended or repealed, together with a
concise statement of the changes made.
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<TABLE>
<S> <C> <C>
NUMBER SHARES
******* SLEEPY'S, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF NEW YORK SEE REVERSE FOR CERTAIN DEFINITIONS
CUSIP 831320 10 6
THIS CERTIFIES THAT
IS THE OWNER OF
FULLY-PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK, PAR VALUE $.01 PER SHARE, OF
SLEEPY'S, INC.
transferable on the books of the Corporation by the holder hereof in person or by duly authorized Attorney, upon surrender of
this Certificate, properly endorsed. This Certificate and the shares represented hereby are issued and shall be held subject
to all the provisions of the Certificate of Incorporation and By-laws of the Corporation and any amendments thereto, copies of
which are on file with the Transfer Agent and Registrar, to all provisions of which the holder hereof by acceptance of this
Certificate assents.
This Certificate is not valid until countersigned by the Transfer Agent and registered by the Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures of its duly authorized officers.
Dated:
[CORPORATE SEAL]
/s/ ******* /S/ *******
SECRETARY CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
COUNTERSIGNED AND REGISTERED:
CONTINENTAL STOCK TRANSFER & TRUST COMPANY
(JERSEY CITY, N.J.) TRANSFER AGENT AND REGISTRAR
-------------------
AUTHORIZED OFFICER
</TABLE>
<PAGE>
<PAGE>
<TABLE>
<S> <C>
THIS CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH SHAREHOLDER WHO SO REQUESTS A COPY OF THE POWERS, DESIGNATIONS,
PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OR SERIES THEREOF AND
THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH PREFERENCES AND/OR RIGHTS.
The following abbreviations, when used in the inscription on the face of this Certificate, shall be construed as though they
were written out in full according to applicable laws or regulations:
TEN COM -- as tenants in common UNIF GIFT MIN ACT --...............Custodian...............
TEN ENT -- as tenants by the entireties (Cust) (Minor)
JT TEN -- as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act ..................................
in common (State)
Additional abbreviations may also be used though not in the above list.
For value received, ______________________________________________________________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
INDENTIFYING NUMBER OF ASSIGNEE
[ ]
________________________________________________________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE OF ASSIGNEE)
________________________________________________________________________________________________________________________________
________________________________________________________________________________________________________________________________
________________________________________________________________________________________________________________________________
__________________________________________________________________________________________________________________________Shares
of the capital stock represented by the within Certificate, and do hereby irrevocably constitute and appoint
________________________________________________________________________________________________________________________Attorney
to transfer the said stock on the books of the within-named Corporation with full power of substitution in the premises.
Dated ______________________________________________
______________________________________________________________________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
SIGNATURE(S) GUARANTEED: ______________________________________________________________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN
APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.
</TABLE>
<PAGE>
<PAGE>
THIS WARRANT AND ANY SECURITIES ACQUIRED UPON THE EXERCISE OF THIS WARRANT
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
'SECURITIES ACT'), OR ANY STATE SECURITIES LAWS AND NEITHER THE SECURITIES NOR
ANY INTEREST THEREIN MAY BE OFFERED, SOLD, TRANSFERRED, PLEDGED OR OTHERWISE
DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH
ACT OR SUCH LAWS OR AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT AND SUCH LAWS.
-----------------------------------------
SLEEPY'S, INC.
REPRESENTATIVE'S WARRANT
-----------------------------------------
This certifies that, for good and valuable consideration, Sleepy's, Inc., a
New York corporation (the 'Company'), grants to Gerard Klauer Mattison & Co.,
LLC, or registered assigns (the 'Warrantholder'), the right to subscribe for and
purchase from the Company 137,500 validly issued, fully paid and nonassessable
shares (the 'Warrant Shares') of the Company's Common Stock, par value $0.01 per
share (the 'Common Stock'), at the purchase price per share of (the
'Exercise Price')(1), at any time and from time to time, during the period from
, 1997 until 5:00PM Eastern Standard Time on ,
2001 (the 'Expiration Date')(2), all subject to the terms, conditions and
adjustments herein set forth. Certain capitalized terms used herein and not
otherwise defined are used with the meanings ascribed to them in Section 17.
Certificate No. 1
Number of Shares: 137,500
Name of Warrantholder: Gerard Klauer Mattison & Co., LLC
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(1) 120% of the offering price of the Company's Common Stock.
(2) Final exercise date shall be five years from the effective date of the
offering.
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1. Duration and Exercise of Warrant; Limitation on Exercise; Payment of
Taxes.
1.1 Duration and Exercise of Warrant. Subject to the terms and conditions
set forth herein, the Warrant may be exercised, in whole or in part, by the
Warrantholder by:
(a) the surrender of this Warrant to the Company, with a duly executed
Exercise Form specifying the number of Warrant Shares to be purchased,
during normal business hours on any Business Day prior to the Expiration
Date; and
(b) the delivery of payment to the Company, for the account of the
Company, by cash or by certified or bank cashier's check, of the Exercise
Price for the number of Warrant Shares specified in the Exercise Form in
lawful money of the United States of America. The Company agrees that such
Warrant Shares shall be deemed to be issued to the Warrantholder as the
record holder of such Warrant Shares as of the close of business on the
date on which this Warrant shall have been surrendered and payment made for
the Warrant Shares as aforesaid (or as provided in Section 1.2 below).
1.2 Conversion Right.
(a) In lieu of the payment of the Exercise Price, the Warrantholder shall
have the right (but not the obligation), to require the Company to convert this
Warrant, in whole or in part, into shares of Common Stock (the 'Conversion
Right') as provided for in this Section 1.2. Upon exercise of the Conversion
Right, the Company shall deliver to the Warrantholder (without payment by the
Warrantholder of any of the Exercise Price) that number of shares of Common
Stock equal to the quotient obtained by dividing (x) the value of the Warrant at
the time the Conversion Right is exercised (determined by subtracting the
aggregate Exercise Price in effect immediately prior to the exercise of the
Conversion Right from the aggregate Fair Market Value for the shares of Common
Stock issuable upon exercise of the Warrant immediately prior to the exercise of
the Conversion Right) by (y) the Fair Market Value of one share of Common Stock
immediately prior to the exercise of the Conversion Right, provided that the
Warrantholder has paid to the Company the par value for such Common Stock.
(b) The Conversion Right may be exercised by the Warrantholder on any
Business Day prior to the Expiration Date by delivering the Warrant Certificate,
with a duly executed Exercise Form with the conversion section completed to the
Company, exercising the Conversion Right and specifying the total number of
shares of Common Stock the Warrantholder will be issued pursuant to such
conversion.
(c) Fair Market Value of a share of Common Stock as of a particular date
(the 'Determination Date') shall mean:
(i) If the Common Stock is listed on a national securities exchange,
then the Fair Market Value shall be the average of the last ten 'daily
sales prices' of the Common Stock on the principal national securities
exchange on which the Common Stock is listed or admitted for trading on the
last ten Business Days prior to the Determination Date, or if not listed or
traded on any such exchange, then the Fair Market Value shall be the
average of the last ten 'daily sales prices' of the Common Stock on the
National Market (the 'National Market') of the National Association of
Securities Dealers Automated Quotations System ('Nasdaq') on the last ten
business days prior to the Determination Date. The 'daily sales price'
shall be the closing price of the Common Stock at the end of each day; or
(ii) If the Common Stock is not so listed or admitted to unlisted
trading privileges or if no such sale is made on at least nine of such
days, then the Fair Market Value shall be the fair value as reasonably
determined in good faith by the Company's Board of Directors or a duly
appointed committee of the Board (which determination shall be reasonably
described in the written notice delivered to the Warrantholder together
with the Common Stock certificates).
1.3 Limitations on Exercise. Notwithstanding anything to the contrary
herein, this Warrant may be exercised only upon the delivery to the Company of
any certificates, legal opinions, or other documents reasonably requested by the
Company to satisfy the Company that the proposed exercise of this Warrant may be
effected without registration under the Securities Act. The Warrantholder shall
not be entitled to exercise this Warrant, or any part thereof, unless and until
such certificates, legal opinions or other documents are reasonably acceptable
to the Company.
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1.4 Warrant Shares Certificate. A stock certificate or certificates for the
Warrant Shares specified in the Exercise Form shall be delivered to the
Warrantholder within 10 Business Days after receipt of the Exercise Form and
receipt of payment of the purchase price if the Conversion Right is not
exercised. If this Warrant shall have been exercised only in part, the Company
shall, at the time of delivery of the stock certificate or certificates, deliver
to the Warrantholder a new Warrant evidencing the rights to purchase the
remaining Warrant Shares, which new Warrant shall in all other respects be
identical with this Warrant.
1.5 Payment of Taxes. The issuance of certificates for Warrant Shares shall
be made without charge to the Warrantholder for any stock transfer or other
issuance tax in respect thereto; provided, however, that the Warrantholder shall
be required to pay any and all taxes which may be payable in respect of any
transfer involved in the issuance and delivery of any certificate in a name
other than that of the then Warrantholder as reflected upon the books of the
Company.
1.6 Divisibility of Warrant; Transfer of Warrant.
(a) Subject to the provisions of this Section 1.6, this Warrant may be
divided into warrants of one thousand shares or multiples thereof, upon
surrender at the principal office of the Company, without charge to any
Warrantholder. Upon such division, the Warrants may be transferred of record as
the then Warrantholder may specify without charge to such Warrantholder (other
than any applicable transfer taxes). In addition, subject to the provisions of
this Section 1.6, the Warrantholder shall also have the right to transfer this
Warrant in its entirety to any person or entity.
(b) Upon surrender of this Warrant to the Company with a duly executed
Assignment Form and funds sufficient to pay any transfer tax, the Company shall,
without charge, execute and deliver a new Warrant or Warrants of like tenor in
the name of the assignee named in such Assignment Form, and this Warrant shall
promptly be canceled. Each Warrantholder agrees that prior to any proposed
transfer (whether as the result of a division or otherwise) of this Warrant,
such Warrantholder shall give written notice to the Company of such
Warrantholder's intention to effect such transfer. Each such notice shall
describe the manner and circumstances of the proposed transfer in sufficient
detail, and, if requested by the Company, shall be accompanied by a written
opinion of legal counsel, which opinion shall be addressed to the Company and be
reasonably satisfactory in form and substance to the Company's counsel, to the
effect that the proposed transfer of this Warrant may be effected without
registration under the Securities Act. In addition, the Warrantholder and the
transferee shall execute any documentation reasonably required by the Company to
ensure compliance with the Securities Act. The Warrantholder shall not be
entitled to transfer this Warrant, or any part thereof, if such legal opinion is
not acceptable to the Company or if such documentation is not provided. The term
'Warrant' as used in this Agreement shall be deemed to include any Warrants
issued in substitution or exchange for this Warrant.
2. Restrictions on Transfer; Restrictive Legends.
Except as otherwise permitted by this Section 2, each Warrant shall (and
each Warrant issued upon direct or indirect transfer or in substitution for any
Warrant pursuant to Section 1.6 or Section 4 shall) be stamped or otherwise
imprinted with a legend in substantially the following form:
THIS WARRANT AND ANY SECURITIES ACQUIRED UPON THE EXERCISE OF THIS
WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY STATE SECURITIES LAWS AND NEITHER THE SECURITIES NOR ANY
INTEREST THEREIN MAY BE OFFERED, SOLD, TRANSFERRED, PLEDGED OR OTHERWISE
DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
SUCH ACT OR SUCH LAWS OR AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT AND
SUCH LAWS.
Except as otherwise permitted by this Section 2, each stock certificate for
Warrant Shares issued upon the exercise of any Warrant and each stock
certificate issued upon the direct or indirect transfer of any such Warrant
Shares shall be stamped or otherwise imprinted with a legend in substantially
the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
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SECURITIES LAWS AND NEITHER THE SECURITIES NOR ANY INTEREST THEREIN MAY BE
OFFERED, SOLD, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT OR SUCH LAWS
OR AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT AND SUCH LAWS.
Notwithstanding the foregoing, the Warrantholder may require the Company to
issue a Warrant or a stock certificate for Warrant Shares, in each case without
a legend, if either (i) such Warrant or such Warrant Shares, as the case may be,
have been registered for resale under the Securities Act or (ii) the
Warrantholder has delivered to the Company an opinion of legal counsel, which
opinion shall be addressed to the Company and be reasonably satisfactory in form
and substance to the Company's counsel, to the effect that such registration is
not required with respect to such Warrant or such Warrant Shares, as the case
may be.
3. Reservation and Registration of Shares, Etc.
The Company covenants and agrees as follows:
(a) all Warrant Shares which are issued upon the exercise of this
Warrant will, upon issuance, be validly issued, fully paid, and
nonassessable, not subject to any preemptive rights, and free from all
taxes, liens, security interests, charges, and other encumbrances with
respect to the issue thereof, other than taxes with respect to any transfer
occurring contemporaneously with such issue;
(b) during the period within which this Warrant may be exercised, the
Company will at all times have authorized and reserved, and keep available
free from preemptive rights, a sufficient number of shares of Common Stock
to provide for the exercise of the rights represented by this Warrant; and
(c) the Company will, from time to time, take all such action as may
be required to assure that the par value per share of the Warrant Shares is
at all times equal to or less than the then effective Exercise Price.
4. Loss or Destruction of Warrant.
Subject to the terms and conditions hereof, upon receipt by the Company of
evidence reasonably satisfactory to it of the loss, theft, destruction or
mutilation of this Warrant and, in the case of loss, theft or destruction, of
such bond or indemnification as the Company may reasonably require, and, in the
case of such mutilation, upon surrender and cancellation of this Warrant, the
Company will execute and deliver a new Warrant of like tenor.
5. Ownership of Warrant.
The Company may deem and treat the person in whose name this Warrant is
registered as the holder and owner hereof (notwithstanding any notations of
ownership or writing hereon made by anyone other than the Company) for all
purposes and shall not be affected by any notice to the contrary, until
presentation of this Warrant for registration of transfer.
6. Certain Adjustments.
6.1 The number of Warrant Shares purchasable upon the exercise of this
Warrant and the Exercise Price shall be subject to adjustment as follows:
(a) Stock Dividends. If at any time after the date of the issuance of
this Warrant (i) the Company shall fix a record date for the issuance of
any stock dividend payable in shares of Common Stock or (ii) the number of
shares of Common Stock shall have been increased by a subdivision or
split-up of shares of Common Stock, then, on the record date fixed for the
determination of holders of Common Stock entitled to receive such dividend
or immediately after the effective date of subdivision or split-up, as the
case may be, the number of shares to be delivered upon exercise of this
Warrant will be increased so that the Warrantholder will be entitled to
receive the number of Shares of Common Stock that such Warrantholder would
have owned immediately following such action had this Warrant been
exercised immediately prior thereto, and the Exercise Price will be
adjusted as provided below in paragraph (g).
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(b) Combination of Stock. If the number of shares of Common Stock
outstanding at any time after the date of the issuance of this Warrant
shall have been decreased by a combination of the outstanding shares of
Common Stock, then, immediately after the effective date of such
combination, the number of shares of Common Stock to be delivered upon
exercise of this Warrant will be decreased so that the Warrantholder
thereafter will be entitled to receive the number of shares of Common Stock
that such Warrantholder would have owned immediately following such action
had this Warrant been exercised immediately prior thereto, and the Exercise
Price will be adjusted as provided below in paragraph (g).
(c) Reorganization, etc. If any capital reorganization of the Company,
any reclassification of the Common Stock, any consolidation of the Company
with or merger of the Company with or into any other person, or any sale or
lease or other transfer of all or substantially all of the assets of the
Company to any other person, shall be effected in such a way that the
holders of Common Stock shall be entitled to receive stock, other
securities or assets (whether such stock, other securities or assets are
issued or distributed by the Company or another person) with respect to or
in exchange for Common Stock, then, upon exercise of this Warrant, the
Warrantholder shall have the right to receive the kind and amount of stock,
other securities or assets receivable upon such reorganization,
reclassification, consolidation, merger or sale, lease or other transfer by
a holder of the number of shares of Common Stock that such Warrantholder
would have been entitled to receive upon exercise of this Warrant had this
Warrant been exercised immediately before such reorganization,
reclassification, consolidation, merger or sale, lease or other transfer,
subject to adjustments that shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Section 6.
(d) Distributions to All Holders of Common Stock. If the Company
shall, at any time after the date of issuance of this Warrant, fix a record
date to distribute to all holders of its Common Stock, any shares of
capital stock of the Company (other than Common Stock) or evidences of its
indebtedness or assets (not including cash dividends or other
distributions, whether paid from retained earnings of the Company or
otherwise) or rights or warrants to subscribe for or purchase any of its
securities, then the Warrantholder shall be entitled to receive, upon
exercise of the Warrant, that portion of such distribution to which it
would have been entitled had the Warrantholder exercised its Warrant
immediately prior to the date of such distribution. At the time it fixes
the record date for such distribution, the Company shall allocate
sufficient reserves to ensure the timely and full performance of the
provisions of this Section 6.1(d). The Company shall promptly (but in any
case no later than five Business Days prior to the record date of such
distribution) mail by first class, postage prepaid, to the Warrantholder,
notice that such distribution will take place.
(e) Fractional Shares. No fractional shares of Common Stock or scrip
shall be issued to any Warrantholder in connection with the exercise of
this Warrant. Instead of any fractional shares of Common Stock that would
otherwise be issuable to such Warrantholder, the Company will pay to such
Warrantholder a cash adjustment in respect of such fractional interest in
an amount equal to that fractional interest of the then current Fair Market
Value per share of Common Stock.
(f) Carryover. Notwithstanding any other provision of this Section 6,
no adjustment shall be made to the number of shares of Common Stock to be
delivered to the Warrantholder (or to the Exercise Price) if such
adjustment represents less than 1% of the number of shares to be so
delivered, but any lesser adjustment shall be carried forward and shall be
made at the time and together with the next subsequent adjustment which
together with any adjustments so carried forward shall amount to 1% or more
of the number of shares to be so delivered.
(g) Exercise Price Adjustment. Whenever the number of Warrant Shares
purchasable upon the exercise of this Warrant is adjusted, as herein
provided, the Exercise Price payable upon the exercise of this Warrant
shall be adjusted by multiplying such Exercise Price immediately prior to
such adjustment by a fraction, of which the numerator shall be the number
of Warrant Shares purchasable upon the exercise of the Warrant immediately
prior to such adjustment, and of which the denominator shall be the number
of Warrant Shares purchasable immediately thereafter.
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6.2 Rights Offering. In the event the Company shall effect an offering of
Common Stock pro rata among its stockholders, the Warrantholder shall be
entitled to elect to participate in each and every such offering as if this
Warrant had been exercised immediately prior to each such offering. The Company
shall promptly (but in any case no later than five Business Days prior to such
rights offering) mail by first class, postage prepaid, to the Warrantholder,
notice that such rights offering will take place. The Company shall not be
required to make any adjustment with respect to the issuance of shares of Common
Stock pursuant to a rights offering in which the holder hereof elects to
participate under the provisions of this Section 6.2.
6.3 Other Dilutive Events. In case any event shall occur as to which the
provisions of Section 6.1 are not strictly applicable, but the failure to make
any adjustment would not fairly protect the purchase rights represented by this
Warrant in accordance with the essential intent and principles of such section,
then, in each such case, the Company shall, at its expense, appoint a firm of
independent public accountants of recognized national standing (who may be the
independent public accountants regularly employed by the Company) to issue a
report which shall determine the adjustment, if any, on a basis consistent with
the essential intent and principles established in Section 6.1, necessary to
preserve without dilution the purchase rights represented by this Warrant. Upon
receipt of such report, the Company will promptly mail a copy thereof to the
Warrantholder and shall make the adjustments described therein.
6.4 Notice of Adjustments. Whenever the number of Warrant Shares or the
Exercise Price of such Warrant Shares is adjusted, as herein provided, the
Company shall promptly mail by first class, postage prepaid, to the
Warrantholder, notice of such adjustment or adjustments and a certificate of a
firm of independent public accountants of recognized national standing selected
by the Board of Directors of the Company (who shall be appointed at the
Company's expense and who may be the independent public accountants regularly
employed by the Company) setting forth the number of Warrant Shares and the
Exercise Price of such Warrant Shares after such adjustment, a brief statement
of the facts requiring such adjustment, and the computation by which such
adjustment was made.
6.5 Notice of Extraordinary Corporate Events. In case the Company after the
date hereof shall propose to (i) distribute any dividend (whether stock or cash
or otherwise) to the holders of shares of Common Stock or to make any other
distribution to the holders of shares of Common Stock, (ii) offer to the holders
of shares of Common Stock rights to subscribe for or purchase any additional
shares of any class of stock or any other rights or options, or (iii) effect any
reclassification of the Common Stock (other than a reclassification involving
merely the subdivision or combination of outstanding shares of Common Stock),
any capital reorganization, any consolidation or merger (other than a merger in
which no distribution of securities or other property is to be made to holders
of shares of Common Stock), any sale or lease or transfer or other disposition
of all or substantially all of its property, assets and business, or the
liquidation, dissolution or winding up of the Company, then, in each such case,
the Company shall mail to each Warrantholder notice of such proposed action,
which notice shall specify the date on which (a) the books of the Company shall
close, or (b) a record shall be taken for determining the holders of Common
Stock entitled to receive such stock dividends or other distribution or such
rights or options, or (c) such reclassification, reorganization, consolidation,
merger, sale, transfer, other disposition, liquidation, dissolution or winding
up shall take place or commence, as the case may be, and the date, if any, as of
which it is expected that holders of record of Common Stock shall be entitled to
receive securities or other property deliverable upon such action. Such notice
shall be mailed in the case of any action covered by clause (i) or (ii) above at
least ten days prior to the record date for determining holders of Common Stock
for purposes of receiving such payment or offer, or in the case of any action
covered by clause (iii) above at least 30 days prior to the date upon which such
action takes place and 20 days prior to any record date to determine holders of
Common Stock entitled to receive such securities or other property.
6.6 Effect of Failure to Notify. Failure to file any certificate or notice
or to mail any notice, or any defect in any certificate or notice, pursuant to
Sections 6.4 and 6.5 shall not affect the legality or validity of the adjustment
to the Exercise Price, the number of shares purchasable upon exercise of this
Warrant, or any transaction giving rise thereto.
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7. Registration Rights.
7.1 Demand Registration Rights.
7.1.1 (a) If at any time prior to , 2001(3), Holders of at
least a majority in interest of the Registrable Securities notify the Company in
writing that such Holders desire and intend to transfer all or a portion of such
Registrable Securities under such circumstances that a public offering, within
the meaning of the Securities Act, will be involved, and that the aggregate
proceeds from the sale of the underlying securities to be so registered would,
at the time of such request, based on the then current market prices, exceed
$2,000,000, then, within forty-five (45) days after receipt of such request, the
Company shall file a registration statement (and use its best efforts to cause
such registration statement to become effective under the Securities Act) with
respect to the offering and sale or other disposition of such securities (the
'Offered Securities'); provided, however, that the Company shall have no
obligation to comply with the foregoing provisions of this Section 7.1.1 if in
the opinion of counsel to the Company reasonably acceptable to the person or
persons from whom such written request has been received that registration under
the Securities Act is not required for the transfer of the Offered Securities in
the manner proposed by such person or persons or that a post-effective amendment
to an existing registration statement would be legally sufficient for such
transfer.
(b) The Company shall not be required (i) to maintain the effectiveness of
the registration statement filed pursuant to this Section 7.1.1 beyond the
earlier of (a) 180 days after the effective date of such registration statement
or (b) consummation of the distribution by the holders of the securities covered
by such registration statement (the 'Termination Date'); provided, however, that
if at such Termination Date the Offered Securities are covered by a registration
statement that also covers other securities and that is required to remain in
effect beyond such Termination Date, the Company shall maintain in effect such
registration statement as it relates to Offered Securities for so long as such
registration statement (or any substitute registration statement) remains or is
required to remain in effect for any of such other securities, or (ii) to comply
with more than one request for registration pursuant to this Section 7.1.1;
provided, however, to the extent that Holders of the Registrable Securities are
excluded by the Company from such registration pursuant to this Section 7.1.1 as
a result of the Company being advised that the aggregate number of securities of
the Company to be included in the registration is sufficiently large to
materially and adversely affect the success of any offering in connection with
such registration, the Holders of such excluded Registrable Securities shall
have the right to one additional request for registration pursuant to this
Section 7.1.1, provided that the failure of such Registrable Securities to be
registered is through no fault of such Holder.
7.1.2 (a) If at any time during the period from , 1997
until , 2001(4), any Holder or Holders of Registrable Securities
notifies the Company in writing that such Holder or Holders desire and intend to
transfer all or a portion of such Registrable Securities under such
circumstances that a public offering, within the meaning of the Securities Act,
will be involved, and that the aggregate proceeds from the sale of the
underlying securities to be so registered would, at the time of such request,
based on the then current market prices, exceed $2,000,000, then, within
forty-five (45) days after receipt of such request, the Company shall file a
registration statement (and use its best efforts to cause such registration
statement to become effective under the Securities Act) with respect to the
offering and sale or other disposition of such Offered Securities; provided,
however, that the Company shall have no obligation to comply with the foregoing
provisions of this Section 7.1.2 if in the opinion of counsel to the Company
reasonably acceptable to the person or persons from whom such written request
has been received that registration under the Securities Act is not required for
the transfer of the Offered Securities in the manner proposed by such person or
persons or that a post-effective amendment to an existing registration statement
would be legally sufficient for such transfer.
(b) The Company shall not be required (i) to maintain the effectiveness of
the registration statement filed pursuant to this Section 7.1.2 beyond the
earlier of (a) 180 days after the effective date of such registration statement
or (b) the applicable Termination Date; provided, however, that if at such
Termination Date the Offered Securities are covered by a registration statement
that also covers other
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(3) Five years after the effective date of the public offering.
(4) Five years after the effective date of the public offering.
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securities and that is required to remain in effect beyond such Termination
Date, the Company shall maintain in effect such registration statement as it
relates to Offered Securities for so long as such registration statement (or any
substitute registration statement) remains or is required to remain in effect
for any of such other securities, or (ii) to comply with more than one request
for registration pursuant to this Section 7.1.2; provided, however, to the
extent that Holders of Registrable Securities are excluded by the Company from
such registration pursuant to this Section 7.1.2 as a result of the Company
being advised that the aggregate number of securities of the Company to be
included in the registration is sufficiently large to materially and adversely
affect the success of any offering in connection with such registration, the
Holders of such excluded Registrable Securities shall have the right to one
additional request for registration pursuant to this Section 7.1.2, provided
that the failure of such Registrable Securities to be registered is through no
fault of such Holder.
7.2 Incidental Registration.
7.2.1 If at any time prior to , 2003(5) the Company proposes
to register any of its Common Stock under the Securities Act by registration on
any form other than Form S-4 or S-8, whether or not for sale for its own
account, it shall each such time give prompt written notice to all registered
Holders of Registrable Securities of its intention to do so and of such Holders'
rights under this Section 7.2. Upon the written request of any such Holder (a
'Requesting Holder') made as promptly as practicable and in any event within ten
days after the receipt of any such notice (which request shall specify the
Registrable Securities intended to be disposed of by such Requesting Holder and
the intended method of disposition), the Company shall use its reasonable best
efforts to effect the registration under the Securities Act of all Registrable
Securities that the Company has been so requested to register by the Requesting
Holders thereof to the extent required to permit the disposition of such
Registrable Securities in accordance with the intended methods thereof described
as aforesaid; provided, however, that prior to the effective date of the
registration statement filed in connection with such registration, immediately
upon notification to the Company from the managing underwriter of the price at
which such securities are to be sold, if such price is below the price which any
Requesting Holder shall have indicated to be acceptable to such Requesting
Holder, the Company shall so advise such Requesting Holder of such price, and
such Requesting Holder shall then have the right to withdraw its request to have
its Registrable Securities included in such registration statement; provided
further, that if, at any time after giving written notice of its intention to
register any securities and prior to the effective date of the registration
statement filed in connection with such registration, the Company shall
determine for any reason not to register or to delay registration of such
securities, the Company may, at its election, give written notice of such
determination to each Requesting Holder of Registrable Securities and (i) in the
case of a determination not to register, shall be relieved of its obligation to
register any Registrable Securities in connection with such registration (but
not from any obligation of the Company to pay the registration expenses in
connection therewith), without prejudice, however, to the rights of any Holder
or Holders of Registrable Securities under Section 7.1, and (ii) in the case of
a determination to delay registering, shall be permitted to delay registering
any Registrable Securities, for the same period as the delay in registering such
other securities. No registration effected under this Section 7.2 shall relieve
the Company of its obligations under Section 7.1. Notwithstanding the foregoing,
if registration pursuant to Section 7.1 is effective at the time the Company
proposes to effect a registration subject to this Section 7.2, the Company shall
have no obligation to notify the Holders of Registrable Securities or effect the
registration of any such securities under this Section 7.2 unless the securities
to be registered by the Company are to be disposed of in an underwritten
offering.
7.2.2 If the managing underwriter of any underwritten offering under this
Section 7.2 shall inform the Company by letter that, in its opinion, the number
or type of Registrable Securities requested to be included in such registration
would adversely affect such offering, and the Company has so advised the
Requesting Holders in writing, then the Company will include in such
registration, to the extent of the number and type that the Company is so
advised can be sold in (or during the time of) such offering, first, all
securities proposed by the Company to be sold for its own account, second, such
Registrable Securities requested to be included in such registration pursuant to
this Agreement, pro rata among
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(5) Seven years after the effective date of the public offering.
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such Requesting Holders on the basis of the estimated proceeds from the sale
thereof and, third, all other securities proposed to be registered.
8. Obligations of the Company. In connection with the registration of the
Registrable Securities as contemplated by Section 7.1 or 7.2, the Company shall:
8.1 prepare and file with the SEC a registration statement or
statements or similar documents (the 'Registration Statement') with respect
to (i) in the case of registration contemplated by Section 7.1, all
Registrable Securities, and thereafter use its best efforts to cause the
Registration Statement to become effective not later than 180 days after
the effective date of the Company's initial public offering and keep the
Registration Statement effective pursuant to Rule 415 at all times until
the third anniversary of such effective date, and (ii) in the case of
incidental registration pursuant to Section 7.2, the securities to be sold
by the Company together with the Registrable Securities to be sold by the
Requesting Holders, and thereafter use its best efforts to cause the
Registration Statement to become effective, which Registration Statement
(including any amendments or supplements thereto and prospectuses contained
therein), in each case, shall not contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein, or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading;
8.2 prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to the Registration Statement
and the prospectus used in connection with the Registration Statement as
may be necessary to keep the Registration Statement effective and to comply
with the provisions of the Securities Act with respect to the disposition
of all Registrable Securities covered by the Registration Statement until
such time as all of such Registrable Securities have been disposed of in
accordance with the intended methods of disposition by the seller or
sellers thereof set forth in the Registration Statement;
8.3 furnish to each Holder whose Registrable Securities are included
in the Registration Statement such number of copies of a prospectus,
including a preliminary prospectus and all amendments and supplements
thereto and such other documents, as such Holder may reasonably request in
order to facilitate the disposition of the Registrable securities owned by
such Holder;
8.4 use reasonable efforts to (i) register and qualify the Registrable
Securities covered by the Registration Statement under such other
securities or Blue Sky laws of such jurisdictions as the Holders who hold a
majority in interest of the Registrable Securities reasonably request, (ii)
prepare and file in those jurisdictions all required amendments (including
post-effective amendments) and supplements, (iii) take such other actions
as may be necessary to maintain such registrations and qualifications in
effect at all times the Registration Statement is in effect and (iv) take
all other actions necessary or advisable to enable the disposition of such
securities in all such jurisdictions; provided, however, that the Company
shall not be required in connection therewith or as a condition thereto to
qualify to do business in any jurisdiction where it would not otherwise be
required to qualify but for this Section 8.4;
8.5 (i) in the case of registration contemplated by Section 7.1, in
the event Holders who hold a majority in interest of the Registrable
Securities select underwriters for the offering, and (ii) in the case of
registration contemplated by Section 7.2, in the event of an underwritten
offering, enter into and perform its obligations under an underwriting
agreement with the managing underwriter of such offering, in usual and
customary form, including, without limitation, customary indemnification
and contribution obligations, and (iii) in the case of any non-underwritten
offering, provide to broker-dealers participating in any distribution of
Registrable Securities reasonable indemnification substantially similar to
that provided by Section 11.1;
8.6 promptly notify each Holder of the happening of any event of which
the Company has knowledge, as a result of which the prospectus included in
the Registration Statement, as then in effect, includes an untrue statement
of a material fact or omits to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances then existing, not misleading, and use its best efforts to
prepare promptly a supplement or amendment to the Registration Statement to
correct such untrue statement or omission, and deliver a number
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of copies of such supplement or amendment to each Holder as such Holder may
reasonably request;
8.7 promptly notify each Holder who holds Registrable Securities being
sold (or, in the event of an underwritten offering, the managing
underwriters) of the issuance by the SEC of any stop order or other
suspension of effectiveness of the Registration Statement, and make every
reasonable effort to obtain the withdrawal of any order suspending the
effectiveness of the Registration Statement at the earliest possible time;
8.8 permit a single firm of counsel designated as selling
stockholders' counsel by the Holders who hold a majority in interest of the
Registrable Securities being sold to review the Registration Statement and
all amendments and supplements thereto a reasonable period of time prior to
their filing with the SEC, and shall not file any document in a form to
which such counsel reasonably objects;
8.9 make generally available to its security holders as soon as
practical, but not later than ninety (90) days after the close of the
period covered thereby, an earnings statement (in form complying with the
provisions of Rule 158 under the Securities Act) covering a twelve-month
period beginning not later than the first day of the Company's fiscal
quarter next following the effective date of the Registration Statement;
8.10 at the request of the Holders who hold a majority in interest of
the Registrable Securities being sold, furnish on the date that Registrable
Securities are delivered to an underwriter for sale in connection with the
Registration Statement (i) a letter, dated such date, from the Company's
independent certified public accountants, in form and substance as is
customarily given by independent certified public accountants to
underwriters in an underwritten public offering, addressed to the
underwriters; and (ii) an opinion, dated such date, from counsel
representing the Company for purposes of such Registration Statement, in
form and substance as is customarily given to underwriters in an
underwritten public offering, addressed to the underwriters;
8.11 make available for inspection by any Holder, any underwriter
participating in any disposition pursuant to the Registration Statement,
and any attorney, accountant, or other agent retained by any such Holder or
underwriter (collectively, the 'Inspectors'), all pertinent financial and
other records, pertinent corporate documents and properties of the Company,
as shall be reasonably necessary to enable each Inspector to exercise its
due diligence responsibility, and cause the Company's officers, directors
and employees to supply all information reasonably requested by any such
Inspector in connection with the Registration Statement;
8.12 use its best efforts either to (i) cause all the Registrable
Securities covered by the Registration Statement to be listed on a national
securities exchange and on each additional national securities exchange on
which similar securities issued by the Company are then listed, if any, if
the listing of such Registrable Securities is then permitted under the
rules of such exchange or (ii) secure designation of all the Registrable
Securities covered by the Registration Statement as a Nasdaq 'National
Market Security' within the meaning of Rule 11Aa2-l of the SEC and the
quotation of the Registrable Securities on the Nasdaq National Market;
8.13 provide a transfer agent and registrar, which may be a single
entity, for the Registrable Securities not later than the effective date of
the Registration Statement;
8.14 cooperate with the Holders who hold Registrable Securities being
sold and the managing underwriter or underwriters, if any, to facilitate
the timely preparation and delivery of certificates (not bearing any
restrictive legends) representing Registrable Securities to be sold
pursuant to the Registration Statement and enable such certificates to be
in such denominations or amounts, as the case may be, and registered in
such names as the managing underwriter or underwriters, if any, or the
Holders may reasonably request; and
8.15 take all other reasonable actions necessary to expedite and
facilitate disposition by the Holders of the Registrable Securities
pursuant to the Registration Statement.
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9. Obligations of the Holders.
9.1 It shall be a condition precedent to the obligations of the Company to
take any action pursuant to this Agreement with respect to each Holder that such
Holder shall furnish to the Company such information regarding itself, the
Registrable Securities held by it and the intended method of disposition of such
securities as shall be reasonably required to effect the registration of the
Registrable Securities and shall execute such documents and agreements in
connection with such registration as the Company may reasonably request. At
least ten days prior to the first anticipated filing date of the Registration
Statement, the Company shall notify each Holder of the information the Company
requires from each such Holder (the 'Requested Information') if he elects to
have any of his Registrable Securities included in the Registration Statement.
If within three Business Days of the filing date the Company has not received
the Requested Information from a Holder (a 'Non-Responsive Holder'), then the
Company may file the Registration Statement without including Registrable
Securities of such Non-Responsive Holders;
9.2 Each Holder, by his acceptance of the Registrable Securities, agrees to
cooperate with the Company in connection with the preparation and filing of any
registration statement hereunder, unless, (i) in the case of registration
contemplated by Section 7.1, such Holder has notified the Company in writing of
his election to exclude all of his Registrable Securities from the Registration
Statement, or (ii) in the case of incidental registration pursuant to Section
7.2, such Holder has decided not to participate;
9.3 In the case of registration contemplated by Section 7.1, in the event
Holders holding a majority in interest of the Registrable Securities select
underwriters for the offering, and in the case of registration contemplated by
Section 7.2, in the event of an underwritten offering, each Holder agrees to
enter into and perform his obligations under an underwriting agreement, in usual
and customary form, including without limitation customary indemnification and
contribution obligations, with the managing underwriter of such offering and
take such other actions as are reasonably required in order to expedite or
facilitate the disposition of the Registrable Securities, unless (i) in the case
of registration contemplated by Section 7.1, such Holder has notified the
Company in writing of his election to exclude all of his Registrable Securities
from the Registration Statement, or (ii) in the case of registration
contemplated by Section 7.2, such Holder has decided not to participate;
9.4 Each Holder agrees that, upon receipt of any notice from the Company of
the happening of any event of the kind described in Section 8.6, such Holder
will immediately discontinue disposition of Registrable Securities pursuant to
the Registration Statement covering such Registrable Securities until such
Holder's receipt of the copies of the supplemented or amended prospectus
contemplated by Section 8.6 and, if so directed by the Company, such Holder
shall deliver to the Company (at the expense of the Company) or destroy (and
deliver to the Company a certificate of such destruction) all copies, other than
permanent file copies then in such Holder's possession, of the prospectus
covering such Registrable Securities current at the time of receipt of such
notice; and
9.5 No Holder may participate in any underwritten registration hereunder
unless such Holder (i) agrees to sell such Holder's Registrable Securities on
the basis provided in any underwriting arrangements approved by the Holders
entitled hereunder to approve such arrangements, (ii) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents reasonably required under the terms of such underwriting
arrangements and (iii) agrees to pay such Holder's pro rata portion of all
underwriting discounts and commissions.
10. Expenses of Registration. With respect to a registration under Section
7.1.1 or 7.2, all expenses other than fees and disbursements of counsel for the
Holders and underwriting discounts and commissions incurred in connection with
registration, filings or qualifications pursuant to Section 8, including,
without limitation, all registration, listing, filing and qualification fees,
printers and accounting fees, and the fees and disbursements of counsel for the
Company shall be borne by the Company. With respect to a registration under
Section 7.1.2, all expenses incurred in connection with registration, filings or
qualifications pursuant to Section 8, including, without limitation, all
registration, listing, filing and qualification fees, printers and accounting
fees, the fees and disbursements of counsel for the Company and the fees and
disbursements of counsel for the registering Holder or Holders, shall be borne
by the registering Holder or Holders.
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11. Indemnification. In the event any Registrable Securities are included
in a Registration Statement under this Agreement:
11.1 To the extent permitted by law, the Company will indemnify and
hold harmless each Holder who holds such Registrable Securities, the
directors, if any, of such Holder, the officers, if any, of such Holder,
who sign the Registration Statement, each person, if any, who controls such
Holder, any underwriter (as defined in the Securities Act) for the Holders,
and each person, if any, who controls any such underwriter within the
meaning of the Securities Act or the Securities Exchange Act of 1934, as
amended (the 'Exchange Act') (each, an 'Indemnified Holder') against any
losses, claims, damages, expenses, liabilities (joint or several)
(collectively, 'Claims') to which any of them may become subject under the
Securities Act, the Exchange Act or otherwise, insofar as such Claims (or
actions or proceedings, whether commenced or threatened, in respect
thereof) arise out of or are based upon any of the following statements,
omissions or violations (collectively, a 'Violation'): (i) any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement or any post-effective amendment thereof, or the
omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not
misleading, (ii) any untrue statement or alleged untrue statement of a
material fact contained in any preliminary prospectus if used prior to the
effective date of such Registration Statement, or contained in the final
prospectus (as amended or supplemented if the Company files any amendment
thereof or supplement thereto with the SEC), or the omission or alleged
omission to state therein a material fact required to be stated therein, or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading, or (iii) any
violation or alleged violation by the Company of the Securities Act, the
Exchange Act, any state securities law, or any rule or regulation
promulgated under the Securities Act, the Exchange Act, or any state
securities law. Subject to the restrictions set forth in Section 11.4 with
respect to the number of legal counsel, the Company shall reimburse the
Holders and each such underwriter or controlling person, promptly as such
expenses are incurred and are due and payable, for any legal fees or other
reasonable expenses incurred by them in connection with investigating or
defending any such Claim, whether or not such claim, investigation or
proceeding is brought or initiated by the Company or a third party. If
multiple claims are brought against an Indemnified Holder in an arbitration
proceeding, and indemnification is permitted under applicable law and is
provided for under this Section 11 with respect to at least one such claim,
the Company agrees that any arbitration award shall be conclusively deemed
to be based on claims as to which indemnification is permitted and provided
for, except to the extent the arbitration award expressly states that the
award, or any portion thereof, is based solely on a claim as to which
indemnification is not available. Notwithstanding anything to the contrary
contained herein, the indemnification agreement contained in this Section
11.1 (a) shall not apply to a Claim arising out of or based upon a
Violation which occurs in reliance upon and in conformity with information
furnished in writing to the Company by any Indemnified Holder expressly for
use in connection with the preparation of the Registration Statement or any
such amendment thereof or supplement thereto; and (b) shall not apply to
amounts paid in settlement of any Claim if such settlement is effected
without the prior written consent of the Company, which consent shall not
be unreasonably withheld. Such indemnity shall remain in full force and
effect regardless of any investigation made by or on behalf of the
Indemnified Holder and shall survive the transfer of the Registrable
Securities by the Holders pursuant to Section 14.
11.2 In connection with any Registration Statement in which a Holder
is participating, each such Holder agrees to indemnify and hold harmless,
to the same extent and in the same manner set forth in Section 11.1, the
Company, each of its directors, each of its officers who sign the
Registration Statement, each person, if any, who controls the Company
within the meaning of the Securities Act or the Exchange Act, any
underwriter and any other stockholder selling securities pursuant to the
Registration Statement or any of its directors or officers or any person
who controls such stockholder or underwriter (collectively and together
with an Indemnified Holder, an 'Indemnified Party'), against any Claim to
which any of them may become subject, under the Securities Act, the
Exchange Act or otherwise, insofar as such Claim arises out of or is based
upon any Violation, in each case to the extent (and only to the extent)
that such Violation occurs in
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reliance upon and in conformity with written information furnished to the
Company by such Holder expressly for use in connection with such
Registration Statement; and such Holder will reimburse any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such Claim; provided, however, that the indemnity agreement
contained in this Section 11.2 shall not apply to amounts paid in
settlement of any Claim if such settlement is effected without the prior
written consent of such Holder, which consent shall not be unreasonably
withheld; provided, further, that the Holder shall be liable under this
Section 11.2 for only that amount of a Claim as does not exceed the net
proceeds to such Holder as a result of the sale of Registrable Securities
pursuant to such Registration Statement.
11.3 The Company shall be entitled to receive indemnities from
underwriters, selling brokers, dealer managers, and similar securities
industry professionals participating in the distribution to the same extent
as provided above, with respect to information about such persons so
furnished in writing by such persons expressly for inclusion in the
Registration Statement.
11.4 Promptly after receipt by an Indemnified Party under this Section
11 of notice of the commencement of any action (including any governmental
action), such Indemnified Party shall, if a Claim in respect thereof is to
be made against any indemnifying party under this Section 11, deliver to
the indemnifying party a written notice of the commencement thereof, and
the indemnifying party shall have the right to participate in, and, to the
extent the indemnifying party so desires, jointly with any other
indemnifying party similarly noticed, to assume control of the defense
thereof with counsel satisfactory to the Indemnified Parties; provided,
however, that an Indemnified Party shall have the right to retain its own
counsel, with the fees and expenses to be paid by the indemnifying party,
if, in the reasonable opinion of counsel for the Indemnified Party,
representation of such Indemnified Party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential
differing interests between such Indemnified Party and any other party
represented by such counsel in such proceeding. The Company shall pay for
only one legal counsel for the Holders; such legal counsel shall be
selected by the Holders holding a majority in interest of the Registrable
Securities. The failure to deliver written notice to the indemnifying party
within a reasonable time of the commencement of any such action shall not
relieve such indemnifying party of any liability to the Indemnified Party
under this Section 11, except to the extent that such failure to notify
results in the forfeiture by the indemnifying party of substantive rights
or defenses. The indemnification required by this Section 11 shall be made
by periodic payments of the amount thereof during the course of the
investigation or defense, as such expense, loss, damage or liability is
incurred and is due and payable.
12. Contribution. To the extent any indemnification by an indemnifying
party is prohibited or limited by law, the indemnifying party agrees to make the
maximum contribution with respect to any amounts for which it would otherwise be
liable under Section 11 to the fullest extent permitted by law; provided,
however, that (i) no contribution shall be made under circumstances where the
maker would not have been liable for indemnification under the fault standards
set forth in Section 11, (ii) no seller of Registrable Securities guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any seller of Registrable
Securities who was not guilty of such fraudulent misrepresentation and (iii)
contribution by any seller of Registrable Securities shall be limited in amount
to the net amount of proceeds received by such seller from the sale of such
Registrable Securities.
13. Reports Under Securities Exchange Act of 1934. With a view to making
available to the Holders the benefits of Rule 144 promulgated under the
Securities Act or any other similar rule or regulation of the SEC that may at
any time permit the Holders to sell securities of the Company to the public
without registration ('Rule 144'), the Company agrees to:
13.1 make and keep public information available, as those terms are
understood and defined in Rule 144, at all times;
13.2 file with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange
Act; and
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13.3 furnish to each Holder so long as such Holder owns Registrable
Securities, promptly upon request, (i) a written statement by the Company
that it has complied with the reporting requirements of Rule 144 (at any
time after 90 days after the effective date of the first registration
statement filed by the Company), the Securities Act and the Exchange Act
(at any time after it has become subject to such reporting requirements),
(ii) a copy of the most recent annual or quarterly report of the Company
and such other reports and documents so filed by the Company, and (iii)
such other information as may be reasonably requested to permit the Holders
to sell such securities without registration.
14. Assignment of Registration Rights. The right to have the Company
register Registrable Securities pursuant to this Warrant shall be automatically
assigned by the Holders to transferees or assignees of this Warrant or such
Registrable Securities, provided that immediately following such transfer or
assignment, the further disposition of such securities by the transferee or
assignee would be subject to restrictions under the Securities Act. The term
'Holders' as used herein shall include permitted assignees and transferees.
15. Amendments. Any provision of this Warrant (including registration
rights) may be amended and the observance thereof may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the Holders who
hold a majority in interest of the Registrable Securities. Any amendment or
waiver effected in accordance with this Section 15 shall be binding upon each
Holder and the Company.
16. Expiration of the Warrant. Except with respect to Sections 11, 12, and
13, the obligations of the Company pursuant to this Warrant shall terminate on
the Expiration Date.
17. Definitions.
As used herein, unless the context otherwise requires, the following terms
have the following respective meanings:
Assignment Form: an Assignment Form in the form annexed hereto as
Exhibit B.
Business Day: any day other than a Saturday, Sunday or a day on which
national banks are authorized by law to close in The City of New York,
State of New York.
Claims: the meaning specified in Section 11.1.
Common Stock: the meaning specified on the cover of this Warrant.
Company: the meaning specified on the cover of this Warrant.
Exchange Act: the meaning specified in Section 11.1 or any similar
Federal statute, and the rules and regulations of the SEC thereunder, all
as the same shall be in effect at the time. Reference to a particular
section of the Exchange Act shall include a reference to a comparable
section, if any, of any such similar Federal statute.
Exercise Form: an Exercise Form in the form annexed hereto as Exhibit
A.
Exercise Price: the meaning specified on the cover of this Warrant.
Expiration Date: the meaning specified on the cover of this Warrant.
Fair Market Value: the meaning specified in Section 1.2(c).
Holder(s): holder(s) of Registrable Securities.
Indemnified Holder: the meaning specified in Section 11.1.
Indemnified Party: the meaning specified in Section 11.2.
Inspectors: the meaning specified in Section 8.11.
Nasdaq: the meaning specified in Section 1.2(c)(i).
National Market: the meaning specified in Section 1.2(c)(i).
Non-Responsive Holder: the meaning specified in Section 9.2.
Registrable Securities: (i) the Warrant Shares and other securities
issued or issuable upon exercise of the Warrants and (ii) any securities
issued or issuable with respect to any Common
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Stock or other securities referred to in subdivision (i) by way of stock
dividend or stock split or in connection with a combination or other
reorganization or otherwise.
Registration Statement: the meaning specified in Section 8.1.
Requested Information: the meaning specified in Section 9.1.
Requesting Holder: the meaning specified in Section 7.2.1.
Rule 144: the meaning specified in Section 13.
Rule 415: Rule 415 under the Securities Act or any successor rule
providing for offering securities on a continuous basis.
SEC: the Securities and Exchange Commission or any other Federal
agency at the time administering the Securities Act or the Exchange Act,
whichever is the relevant statute for the particular purpose.
Securities Act: the meaning specified on the cover of this Warrant, or
any similar Federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
Reference to a particular section of the Securities Act, shall include a
reference to the comparable section, if any, of any such similar Federal
statute.
Violation: the meaning specified in Section 11.1.
Warrantholder: the meaning specified on the cover of this Warrant.
Warrant Shares: the meaning specified on the cover of this Warrant.
18. Miscellaneous.
18.1 Entire Agreement. This Warrant constitutes the entire agreement
between the Company and the Warrantholder with respect to the Warrants.
18.2 Binding Effects; Benefits. This Warrant shall inure to the benefit of
and shall be binding upon the Company and the Warrantholder and their respective
heirs, legal representatives, successors and assigns. Nothing in this Warrant,
expressed or implied, is intended to or shall confer on any person other than
the Company and the Warrantholder, or their respective heirs, legal
representatives, successors or assigns, any rights, remedies, obligations or
liabilities under or by reason of this Warrant.
18.3 Section and Other Headings. The section and other headings contained
in this Warrant are for reference purposes only and shall not be deemed to be a
part of this Warrant or to affect the meaning or interpretation of this Warrant.
18.4 Pronouns. All pronouns and any variations thereof refer to the
masculine, feminine or neuter, singular or plural, as the context may require.
18.5 Further Assurances. Each of the Company and the Warrantholder shall do
and perform all such further acts and things and execute and deliver all such
other certificates, instruments and documents as the Company or the
Warrantholder may, at any time and from time to time, reasonably request in
connection with the performance of any of the provisions of this Agreement.
18.6 Notices. All notices and other communications required or permitted to
be given under this Warrant shall be in writing and shall be deemed to have been
duly given if delivered personally or sent by United States mail, postage
prepaid, to the parties hereto at the following addresses or to such other
address as any party hereto shall hereafter specify by notice to the other party
hereto:
(a) if to the Company, addressed to:
Sleepy's, Inc.
175 Central Avenue South
Bethpage, New York 11714
Attention: [Harry Acker]
(b) if to the Warrantholder, addressed to:
Gerard Klauer Mattison & Co., LLC
529 Fifth Avenue
New York, New York 10017
Attention: [Dominic Petito]
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Except as otherwise provided herein, all such notices and communications shall
be deemed to have been received on the date of delivery thereof, if delivered
personally, or on the third Business Day after the mailing thereof.
18.7 Separability. Any term or provision of this Warrant which is invalid
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the terms and provisions of this Warrant or
affecting the validity or enforceability of any of the terms or provisions of
this Warrant in any other jurisdiction.
18.8 Governing Law. This Warrant shall be deemed to be a contract made
under the laws of New York and for all purposes shall be governed by and
construed in accordance with the laws of such State applicable to such
agreements made and to be performed entirely within such State.
18.9 No Rights or Liabilities as Stockholder. Nothing contained in this
Warrant shall be determined as conferring upon the Warrantholder any rights as a
stockholder of the Company or as imposing any liabilities on the Warrantholder
to purchase any securities whether such liabilities are asserted by the Company
or by creditors or stockholders of the Company or otherwise.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its
duly authorized officer.
SLEEPY'S, INC.
By:
...................................
NAME:
TITLE:
Dated: , 1996
Attest:
By:
.................................
NAME:
TITLE:SECRETARY
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EXHIBIT A
EXERCISE FORM
(TO BE EXECUTED UPON EXERCISE OF THIS WARRANT)
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant, to purchase of the Warrant Shares and
herewith tenders (i) payment for such Warrant Shares to the order of Sleepy's,
Inc. in the amount of $ or (ii) Warrants to purchase shares of
Common Stock in order to exercise the Conversion Right (as defined in Section
1.2 of the Warrant) and payment of the par value for of the Warrant
Shares, in either case, in accordance with the terms of this Warrant. The
undersigned requests that a certificate for such Warrant Shares be registered in
the name of and that such certificates be delivered to
whose address is
.
Dated: .................
.....................................
(Signature)
.....................................
(Print Name)
.....................................
(Street Address)
.....................................
(City) (State) (Zip Code)
Signed in the Presence of:
.....................................
A-1
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EXHIBIT B
FORM OF ASSIGNMENT
(TO BE EXECUTED ONLY UPON TRANSFER OF THIS WARRANT)
For value received, the undersigned registered holder of the within Warrant
hereby sells, assigns and transfers unto the right
represented by such Warrant to purchase shares of Common Stock of
Sleepy's, Inc. to which such Warrant relates and all other rights of the
Warrantholder under the within Warrant (including, without limitation, the
registration rights provided in Section 7 of the within Warrant), and appoints
Attorney to make such transfer on the books of Sleepy's,
Inc. maintained for such purpose, with full power of substitution in the
premises.
Dated: .................
.....................................
(Signature)
.....................................
(Print Name)
.....................................
(Street Address)
.....................................
(City) (State) (Zip Code)
Signed in the Presence of:
.....................................
B-1
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EXHIBIT 10.3
SLEEPY'S, INC.
1996 STOCK OPTION PLAN
1. PURPOSES OF THE PLAN. This stock option plan (the "Plan")
is designed to provide an incentive to key employees (including officers and
directors who are key employees), consultants and directors who are not
employees of Sleepy's, Inc., a New York corporation (the "Company"), and its
present and future subsidiary corporations, as defined in Paragraph 19
("Subsidiaries"), and to offer an additional inducement in obtaining the
services of such individuals. The Plan provides for the grant of "incentive
stock options" ("ISOs") within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), and nonqualified stock options
("NQSOs"), but the Company makes no warranty as to the qualification of any
option as an "incentive stock option" under the Code.
2. STOCK SUBJECT TO THE PLAN. Subject to the provisions of
Paragraph 12, the aggregate number of shares of Common Stock, $.01 par value per
share, of the Company ("Common Stock") for which options may be granted under
the Plan shall not exceed 400,000. Such shares of Common Stock may, in the
discretion of the Board of Directors of the Company (the "Board of Directors"),
consist either in whole or in part of authorized but unissued shares of Common
Stock or shares of Common Stock held in the treasury of the Company. The Company
shall at all times during the term of the Plan reserve and keep available such
number of shares of Common Stock as will be sufficient to satisfy the
requirements of the Plan. Subject to the provisions of Paragraph 13, any shares
of Common Stock subject to an option which for any reason expires, is cancelled
or is terminated unexercised or which ceases for any reason to be exercisable
shall again become available for the granting of options under the Plan.
3. ADMINISTRATION OF THE PLAN. The Plan shall be administered
by a committee of the Board of Directors consisting of not less than three
Directors (the "Committee"). During such time as the Company has a class of
equity securities registered under Section 12 of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), each member of the Committee shall be (a)
a "disinterested person" within the meaning of Rule 16b-3 (or any successor rule
or regulation) promulgated under the Exchange Act ("Rule 16b-3") until such time
as the amendments to Rule 16b-3 adopted by the Securities and Exchange
Commission on May 30, 1996 in Release No. 34-37260 become effective with respect
to the Plan (the "New Rule Date") and (b) from and after the New Rule Date, a
"non-employee director" within the meaning of Rule 16b-3. A majority of the
members of the Committee shall constitute a quorum, and the acts of a majority
of the members present at any meeting at which a quorum is present, and any acts
approved in writing by all members without a meeting, shall be the acts of the
Committee.
Subject to the express provisions of the Plan, the Committee
shall have the authority, in its sole discretion, with respect to Employee
Options (as defined in Paragraph 19) and Consultant Options (as defined in
Paragraph 19): to determine the key employees and consultants who shall
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receive options; the times when they shall receive options; whether an Employee
Option shall be an ISO or a NQSO; the number of shares of Common Stock to be
subject to each option; the term of each option; the date each option shall
become exercisable; whether an option shall be exercisable in whole, in part or
in installments, and, if in installments, the number of shares of Common Stock
to be subject to each installment; whether the installments shall be cumulative;
the date each installment shall become exercisable and the term of each
installment; whether to accelerate the date of exercise of any installment;
whether shares of Common Stock may be issued on exercise of an option as partly
paid, and, if so, the dates when future installments of the exercise price shall
become due and the amounts of such installments; the exercise price of each
option; the form of payment of the exercise price; whether to restrict the sale
or other disposition of the shares of Common Stock acquired upon the exercise of
an option and to waive any such restriction; whether to subject the exercise of
all or any portion of an option to the fulfillment of contingencies as specified
in the Contract (as described in Paragraph 11), including without limitations,
contingencies relating to entering into a covenant not to compete with the
Company and its Parent and Subsidiaries, to financial objectives for the
Company, a Subsidiary, a division, a product line or other category, and/or the
period of continued employment of the optionee with the Company or its
Subsidiaries, and to determine whether such contingencies have been met; when an
optionee is Disabled (as defined in Paragraph 19); and, with respect to Employee
Options, Consultant Options and, subject, prior to the New Rule Date, to any
limitations under Rule 16b-3, Director Options (as defined in Paragraph 19); to
determine the amount, if any, necessary to satisfy the obligation of the
Company, a Subsidiary or Parent to withhold taxes or other amounts with respect
to the grant, exercise or disposition of an option or the disposition of the
underlying shares of Common Stock; the fair market value of a share of Common
Stock; to construe the respective Contracts and the Plan; with the consent of
the optionee, to cancel or modify an option, provided that the modified
provision is permitted to be included in an option granted under the Plan on the
date of the modification, and provided, further, that in the case of a
modification (within the meaning of Section 424(h) of the Code) of an ISO, such
option as modified would be permitted to be granted on the date of such
modification under the terms of the Plan; to prescribe, amend and rescind rules
and regulations relating to the Plan; from and after the New Rule Date to
approve any provision that, under Rule 16b-3, requires the approval of the Board
of Directors, a committee of "non-employee directors" or the shareholders to be
exempt (unless otherwise specifically provided herein); and to make all other
determinations necessary or advisable for administering the Plan. The
determinations of the Committee on the matters referred to in this Paragraph 3
shall be conclusive. Any controversy or claim arising out of or relating to the
Plan, any option granted under the Plan or any Contract shall be unilaterally
determined by the Committee in its sole discretion. No member or former member
of the Committee shall be liable for any action, failure to act or determination
made in good faith with respect to the Plan or any option granted hereunder.
4. ELIGIBILITY; GRANTS. The Committee may, consistent with the
purposes of the Plan, grant Employee Options from time to time, to key employees
(including officers and directors who are key employees) and Consultant Options
to consultants of the Company or any of its Subsidiaries. Options granted shall
cover such number of shares of Common Stock as the Committee may determine;
provided, however, that the maximum number of shares of Common Stock for which
Employee Options may be granted to any individual during a calendar year under
the Plan is 100,000 (the "162(m) Maximum"); and provided, further, that the
aggregate market value
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(determined at the time the option is granted) of the shares of Common Stock for
which any eligible employee may be granted ISOs under the Plan or any other plan
of the Company, or of a Parent or a Subsidiary of the Company, which are
exercisable for the first time by such optionee during any calendar year shall
not exceed $100,000. The $100,000 ISO limitation shall be applied by taking ISOs
into account in the order in which they were granted. Any option (or the portion
thereof) granted in excess of such amount shall be treated as a NQSO.
Beginning on January 31, 1997 and on each January 31
thereafter during the term of the Plan, each person who is an Outside Director
on the immediately preceding December 31 shall be granted an option to purchase
100 shares of Common Stock for each month or portion thereof during the 12-month
period ended on such December 31 that such person served as an Outside Director.
In addition, on the effective date of the Company's initial public offering,
each Outside Director shall be granted an option to purchase 1,200 shares of
Common Stock, the exercise price of each such share being hereby determined to
be the initial public offering price per share. In the event the remaining
shares available for grant under the Plan are not sufficient to grant the
Director Options to each such Outside Director in any year, the number of shares
subject to the Director Options for such year shall be reduced proportionately.
The Committee shall not have any discretion with respect to the selection of
Directors to receive Director Options or the amount, the price or the timing
with respect thereto.
5. EXERCISE PRICE. The exercise price of the shares of Common
Stock under each Employee Option and Consultant Option shall be determined by
the Committee; provided, however, that the exercise price shall not be less than
100% of the fair market value of the Common Stock subject to such option on the
date of grant; and provided, further, that if, at the time an ISO is granted,
the optionee owns (or is deemed to own under Section 424(d) of the Code) stock
possessing more than 10% of the total combined voting power of all classes of
stock of the Company, of any of its Subsidiaries or of a Parent, the exercise
price of such ISO shall not be less than 110% of the fair market value of the
Common Stock subject to such ISO on the date of grant. The exercise price of the
shares of Common Stock under each Director Option shall be equal to the fair
market value of the Common Stock subject to the option on the date of grant.
The fair market value of a share of Common Stock on any day
shall be (a) if the principal market for the Common Stock is a national
securities exchange, the average between the highest and lowest sales prices per
share of the Common Stock on such day as reported by such exchange or on a
composite tape reflecting transactions on such exchange, (b) if the principal
market for the Common Stock is not a national securities exchange and the Common
Stock is quoted on The Nasdaq Stock Market ("Nasdaq"), and (i) if actual sales
price information is available with respect to the Common Stock, the average
between the high and low sales prices per share of the Common Stock on such day
on Nasdaq, or (ii) if such information is not available, the average between the
highest bid and the lowest asked prices for the Common Stock on such day on
Nasdaq, or (c) if the principal market for the Common Stock is not a national
securities exchange and the Common Stock is not quoted on Nasdaq, the average
between the highest bid and lowest asked prices per share for the Common Stock
on such day as reported on the OTC Bulletin Board Service, National Quotation
Bureau, Incorporated or a comparable service; provided that if clauses (a), (b)
and (c) of this Paragraph are all inapplicable, or if no trades have been made
or no quotes are
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available for such day, the fair market value of a share of Common Stock shall
be determined by the Committee by any method consistent with applicable
regulations adopted by the Treasury Department relating to stock options.
6. TERM. The term of each Employee Option and Consultant
Option granted pursuant to the Plan shall be such term as is established by the
Committee, in its sole discretion, as set forth in the applicable Contract;
provided, however, that the term of each ISO granted pursuant to the Plan shall
be for a period not exceeding 10 years from the date of grant thereof, and
provided, further, that if, at the time an ISO is granted, the optionee owns (or
is deemed to own under Section 424(d) of the Code) stock possessing more than
10% of the total combined voting power of all classes of stock of the Company,
of any of its Subsidiaries or of a Parent, the term of the ISO shall be for a
period not exceeding five years from the date of grant. Employee Options and
Consultant Options shall be subject to earlier termination as hereinafter
provided. Each Director Option shall be exercisable for a term of 10 years
commencing on the date of grant.
7. EXERCISE. An option (or any part or installment thereof),
to the extent then exercisable, shall be exercised by giving written notice to
the Company at its principal office, stating which ISO or NQSO is being
exercised, specifying the number of shares of Common Stock as to which such
option is being exercised and accompanied by payment in full of the aggregate
exercise price therefor (or the amount due on exercise if the Contract permits
installment payments) (a) in cash or by certified check or (b) in the case of an
Employee Option or a Consultant Option, if the Contract at the time of grant so
permits, with previously acquired shares of Common Stock having an aggregate
fair market value, on the date of exercise, equal to the aggregate exercise
price of all options being exercised, or with any combination of cash, certified
check or shares of Common Stock.
The Committee may, in its discretion, permit payment of the
exercise price of an option by delivery by the optionee of a properly executed
exercise notice, together with a copy of his irrevocable instructions to a
broker acceptable to the Committee to deliver promptly to the Company the amount
of sale or loan proceeds sufficient to pay such exercise price. In connection
therewith, the Company may enter into agreements for coordinated procedures with
one or more brokerage firms.
A person entitled to receive Common Stock upon the exercise of
an option shall not have the rights of a shareholder with respect to such shares
of Common Stock until the date of issuance of a stock certificate to him for
such shares; provided, however, that until such stock certificate is issued, any
option holder using previously acquired shares of Common Stock in payment of an
option exercise price shall continue to have the rights of a shareholder with
respect to such previously acquired shares.
In no case may a fraction of a share of Common Stock be
purchase or issued under the Plan.
8. TERMINATION OF RELATIONSHIP. Except as may otherwise
be provided in the applicable Contract, any holder of an Employee Option whose
employment with the
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Company (and its Parent and Subsidiaries) has terminated for any reason other
than his death or Disability (as defined in Paragraph 19) may exercise such
option, to the extent exercisable on the date of such termination, at any time
within three months after the date of termination, but not thereafter and in no
event after the date the option would otherwise have expired; provided, however,
that if his employment shall be terminated either (a) for cause, or (b) without
the consent of the Company, said option shall terminate immediately. Employee
Options granted under the Plan shall not be affected by any change in the status
of the holder so long as he continues to be an employee of the Company, its
Parent or any of the Subsidiaries (regardless of having been transferred from
one corporation to another).
For purposes of the Plan, an employment relationship shall be
deemed to exist between an individual and a corporation if, at the time of the
determination, the individual was an employee of such corporation for purposes
of Section 422(a) of the Code. As a result, an individual on military, sick
leave or other bona fide leave of absence shall continue to be considered an
employee for purposes of the Plan during such leave if the period of the leave
does not exceed 90 days, or, if longer, so long as the individual's right to
reemployment with the Company (or a related corporation) is guaranteed either by
statute or by contract. If the period of leave exceeds 90 days and the indi-
vidual's right to reemployment is not guaranteed by statute or by contract, the
employment relationship shall be deemed to have terminated on the 91st day of
such leave. In addition, for purposes of the Plan, an optionee's employment
with a Subsidiary or Parent of the Company shall be deemed to have terminated on
the date such corporation ceases to be a Subsidiary or Parent of the Company.
The termination of an optionee's relationship as a consultant
of the Company or of a Subsidiary of the Company shall not affect the option
except as may otherwise be provided in the Contract. A Director Option may be
exercised at any time during its 10 year term. The Director Option shall not be
affected by the holder ceasing to be a director of the Company or becoming an
employee or consultant of the Company, a Parent or any of its Subsidiaries.
Nothing in the Plan or in any option granted under the Plan
shall confer on any individual any right to continue in the employ or as a
consultant or director of the Company, its Parent or any of its Subsidiaries, or
interfere in any way with the right of the Company, its Parent or any of its
Subsidiaries to terminate such relationship at any time for any reason
whatsoever without liability to the Company, a Parent or any of its
Subsidiaries.
9. DEATH OR DISABILITY OF AN OPTIONEE. If an optionee dies (a)
while he is employed by the Company, its Parent or any of its Subsidiaries, (b)
within three months after the termination of his employment (unless such
termination was for cause or without the consent of the Company) or (c) within
one year following the termination of his employment by reason of Disability,
his Employee Option may be exercised, to the extent exercisable on the date of
his death, by his executor, administrator or other person at the time entitled
by law to his rights under such option, at any time within one year after death,
but not thereafter and in no event after the date the option would otherwise
have expired.
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Any optionee whose employment has terminated by reason of
Disability may exercise his Employee Option, to the extent exercisable upon the
effective date of such termination, at any time within one year after such date,
but not thereafter and in no event after the date the option would otherwise
have expired.
The death or Disability of an optionee to whom a Consultant
Option has been granted under the Plan shall not affect the option, except as
may otherwise be provided in the Contract. The term of a Director Option shall
not be affected by the death or Disability of the optionee. In such case, the
option may be exercised at any time during its term by his executor,
administrator or other person at the time entitled by law to the optionee's
rights under such option.
10. COMPLIANCE WITH SECURITIES LAWS. The Committee may
require, in its sole discretion, as a condition to the exercise of any option
that either (a) a Registration Statement under the Securities Act of 1933, as
amended (the "Securities Act"), with respect to the shares of Common Stock to be
issued upon such exercise shall be effective and current at the time of
exercise, or (b) there is an exemption from registration under the Securities
Act for the issuance of shares of Common Stock upon such exercise. Nothing
herein shall be construed as requiring the Company to register shares subject to
any option under the Securities Act or to keep any Registration Statement
effective or current.
The Committee may require, in its sole discretion, as a
condition to the exercise of an option under the Plan, that the optionee execute
and deliver to the Company his representations and warranties, in form,
substance and scope satisfactory to the Committee, which the Committee
determines are necessary or convenient to facilitate the perfection of an
exemption from the registration requirements of the Securities Act, applicable
state securities laws or other legal requirements, including without limitation
that (a) the shares of Common Stock to be issued upon the exercise of the option
are being acquired by the optionee for his own account, for investment only and
not with a view to the resale or distribution thereof, and (b) any subsequent
resale or distribution of shares of Common Stock by such optionee will be made
only pursuant to (i) a Registration Statement under the Securities Act which is
effective and current with respect to the shares of Common Stock being sold, or
(ii) a specific exemption from the registration requirements of the Securities
Act, but in claiming such exemption, the optionee shall prior to any offer of
sale or sale of such shares of Common Stock provide the Company with a favorable
written opinion of counsel satisfactory to the Company, in form, substance and
scope satisfactory to the Company, as to the applicability of such exemption to
the proposed sale or distribution.
In addition, if at any time the Committee shall determine in
its discretion that the listing or qualification of the shares of Common Stock
subject to such option on any securities exchange or under any applicable law,
or the consent or approval of any governmental agency or regulatory body, is
necessary or desirable as a condition of, or in connection with, the granting of
an option, or the issuance of shares of Common Stock thereunder, such option may
not be exercised in whole or in part unless such listing, qualification, consent
or approval shall have been effected or obtained free of any conditions not
acceptable to the Committee.
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11. STOCK OPTION CONTRACTS. Each option shall be evidenced by
an appropriate Contract which shall be duly executed by the Company and the
optionee, and shall contain such terms and conditions not inconsistent herewith
as may be determined by the Committee.
12. ADJUSTMENTS UPON CHANGES IN COMMON STOCK. Not withstanding
any other provisions of the Plan, in the event of any change in the outstanding
Common Stock by reason of a stock dividend, recapitalization, merger or
consolidation in which the Company is the surviving corporation, spin-off,
split-up, combination or exchange of shares or the like, the aggregate number
and kind of shares subject to the Plan, the aggregate number and kind of shares
subject to each outstanding option and the exercise price thereof, the number
and kind of shares subject to future grants of Director Options and the 162(m)
Maximum shall be appropriately adjusted by the Board of Directors, whose
determination shall be conclusive. Such adjustment may provide for the
elimination of fractional shares, which might otherwise be subject to options
without payment therefor.
In the event of (a) the liquidation or dissolution of the
Company or (b) a merger in which the Company is not the surviving corporation
or a consolidation, any outstanding options shall terminate, unless other
provision is made therefor in the transaction.
13. AMENDMENTS AND TERMINATION OF THE PLAN. The Plan was
adopted by the Board of Directors on June 21, 1996. No option may be granted
under the Plan after June 20, 2006. The Board of Directors, without further
approval of the Company's shareholders, may at any time suspend or terminate
the Plan, in whole or in part, or amend it from time to time in such respects as
it may deem advisable, including, without limitation, in order that ISOs granted
hereunder meet the requirements for "incentive stock options" under the Code, to
comply with the provisions of Rule 16b-3, Section 162(m) of the Code, or any
change in applicable law or to regulations or rulings of administrative
agencies; provided, however, that no amendment shall be effective without the
requisite prior or subsequent shareholder approval which would (a) except as
contemplated in Paragraph 12, increase the maximum number of shares of Common
Stock for which options may be granted under the Plan or the 162(m) Maximum,
(b) prior to the New Rule Date, materially increase the benefits to participants
under the Plan or (c) change the eligibility requirements for individuals
entitled to receive options hereunder. Notwithstanding the foregoing, prior to
the New Rule Date, the provisions regarding the selection of directors for
participation in, and the amount, the price or the timing of, Director Options
shall not be amended more than once every six months, other than to comport with
changes in the Code, the Employee Retirement Income Security Act or the rules
thereunder. No termination, suspension or amendment of the Plan shall, without
the consent of the holder of an existing option affected thereby, adversely
affect his rights under such option. The power of the Committee to construe and
administer any options granted under the Plan prior to the termination or
suspension of the Plan nevertheless shall continue after such termination or
during such suspension.
14. NON-TRANSFERABILITY OF OPTIONS. No option granted under
the Plan shall be transferable otherwise than by will or the laws of descent and
distribution, and options may be exercised, during the lifetime of the holder
thereof, only by him or his legal representatives. Except to the extent provided
above, options may not be assigned, transferred, pledged, hypothecated
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or disposed of in any way (whether by operation of law or otherwise) and shall
not be subject to execution, attachment or similar process.
15. WITHHOLDING TAXES. The Company, a Subsidiary or Parent may
withhold cash and/or, subject to any applicable limitations under Rule 16b-3,
shares of Common Stock to be issued with respect thereto having an aggregate
fair market value on the exercise date equal to the amount which the Committee
determines is necessary to satisfy the obligation of the Company, any of its
Subsidiaries or Parent to withhold Federal, state and local taxes or other
amounts incurred by reason of the grant or exercise of an option, its
disposition, or the disposition of the underlying shares of Common Stock.
Alternatively, the Company may require the holder to pay to the Company such
amount, in cash, promptly upon demand. The Company shall not be required to
issue any shares of Common Stock pursuant to any such option until all required
payments have been made. Fair market value of the shares of Common Stock shall
be determined in accordance with Paragraph 5.
16. LEGENDS; PAYMENT OF EXPENSES. The Company may endorse such
legend or legends upon the certificates for shares of Common Stock issued upon
exercise of an option under the Plan and may issue such "stop transfer"
instructions to its transfer agent in respect of such shares as it determines,
in its discretion, to be necessary or appropriate to (a) prevent a violation of,
or to perfect an exemption from, the registration requirements of the Securities
Act and applicable state securities laws, (b) implement the provisions of the
Plan or any agreement between the Company and the optionee with respect to such
shares of Common Stock, or (c) permit the Company to determine the occurrence of
a "disqualifying disposition," as described in Section 421(b) of the Code, of
the shares of Common Stock transferred upon the exercise of an ISO granted under
the Plan.
The Company shall pay all issuance taxes with respect to the
issuance of shares of Common Stock upon the exercise of an option granted under
the Plan, as well as all fees and expenses incurred by the Company in connection
with such issuance.
17. USE OF PROCEEDS. The cash proceeds from the sale of shares
of Common Stock pursuant to the exercise of options under the Plan shall be
added to the general funds of the Company and used for such general corporate
purposes as the Board of Directors may determine.
18. SUBSTITUTIONS AND ASSUMPTIONS OF OPTIONS OF CERTAIN
CONSTITUENT CORPORATIONS. Anything in this Plan to the contrary notwithstanding,
the Board of Directors may, without further approval by the shareholders,
substitute new options for prior options of a Constituent Corporation (as
defined in Paragraph 19) or assume the prior options of such Constituent
Corporation.
19. DEFINITIONS.
(a) "Constituent Corporation" shall mean any corporation
which engages with the Company, any of its Subsidiaries or a Parent in a
transaction to which Section 424(a) of
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the Code applies (or would apply if the option assumed or substituted were an
ISO), or any Parent or any Subsidiary of such corporation.
(b) "Consultant Option" shall mean a NQSO granted
pursuant to the Plan to a person who, on the date of grant, is a consultant to
the Company or a Subsidiary of the Company and who is not an employee of the
Company or any of its Subsidiaries on such date.
(c) "Director Option" shall mean a NQSO granted pursuant
to the Plan to an Outside Director.
(d) "Disability" shall mean a permanent and total
disability within the meaning of Section 22(e)(3) of the Code.
(e) "Employee Option" shall mean an option granted
pursuant to the Plan to an individual who, on the date of grant, is a key
employee of the Company or a Subsidiary of the Company.
(f) "Outside Director" shall mean an individual who, on
the date of grant of a NQSO hereunder, is a director of the Company but is not
an employee of the Company or of any of its Subsidiaries or its Parent.
(g) "Parent" shall have the same definition as "parent
corporation" in Section 424(e) of the Code.
(h) "Subsidiary" shall have the same definition as
"subsidiary corporation" in Section 424(f) of the Code.
20. GOVERNING LAW; CONSTRUCTION. The Plan, such options as may
be granted hereunder, the Contracts and all related matters shall be governed
by, and construed in accordance with, the laws of the State of New York, without
regard to conflict of law provisions. Neither the Plan nor any Contract shall be
construed or interpreted with any presumption against the Company by reason of
the Company causing the Plan or Contract to be drafted. Whenever from the
context it appears appropriate, any term stated in either the singular or plural
shall include the plural and the singular, and any term stated in the masculine,
feminine or neuter shall include the masculine, feminine and neuter.
21. PARTIAL INVALIDITY. The invalidity, illegality or
unenforceability of any provision herein shall not affect the validity, legality
or enforceability of any other provision, all of which shall be valid, legal and
enforceable to the fullest extent permitted by applicable law.
22. SHAREHOLDER APPROVAL. The Plan shall be subject to
approval by a majority of the votes cast at the next duly held meeting of the
Company's shareholders at which a majority of the outstanding voting shares are
present, in person or by proxy, and voting on the Plan. No options granted
pursuant to the Plan may be exercised prior to such approval, provided that the
date of grant of any options granted thereunder shall be determined as if the
Plan had not been subject
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to such approval. Notwithstanding the foregoing, if the Plan is not approved by
a vote of the shareholders of the Company on or before June 20, 1997, the Plan
and any options granted thereunder shall terminate.
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EXHIBIT 10.4
SLEEPY'S INC.
1996 EXECUTIVE BONUS PLAN
1. PURPOSE
The purpose of the Sleepy's Inc. (the 'Company') 1996 Executive Bonus Plan
('Plan') is to reward the current Chief Executive Officer and Executive Vice
President ('Executives') of the Company, so as to provide incentive to such
Executives to continue within the employ of the Company and to assist in the
enhancement of the Company's productivity. These purposes will be achieved in
accordance with the terms of this Plan set forth below.
2. PLAN PROVISIONS
2.1 The Plan commenced as of June 6, 1996 and shall terminate as of
December 31, 1997.
2.2 With respect to 1996, the Company may pay bonuses to the Executives in
an aggregate amount of 15.0% of the excess of the Company's 1996 net income
before income taxes (computed in accordance with generally accepted accounting
principles consistently applied) ('Pre-Tax Net Income') over $4,844,000.
2.3 With respect to 1997, the Company may pay bonuses to the Executives in
an aggregate amount of 15.0% of the excess of the Company's 1997 Pre-Tax Net
Income over $5,328,000.
2.4 Bonus payments under this Plan shall not be made for any year unless
the Pre-Tax Net Income meets the specified levels attributable to such years as
set forth in Sections 2.2 and 2.3, respectively.
3. ADMINISTRATION
3.1 This Plan shall be administered by the Compensation Committee of the
Board of Directors (the 'Compensation Committee'). The Compensation Committee
shall have the authority to determine, in its sole discretion: (a) the date on
which such bonuses under this Plan shall be paid and (b) all other matters
relating to this Plan.
3.2 The Compensation Committee may adopt such rules for the administration
of this Plan as it deems necessary or advisable, in its sole discretion. The
Compensation Committee shall have the exclusive right to construe this Plan and
to correct defects and omissions in this Plan, and to take further actions as it
deems necessary or advisable, in its sole discretion, to carry out the purpose
and intent of this Plan. Such actions shall be final, binding and conclusive
upon all parties concerned.
3.3 The Compensation Committee shall not be liable for any act or omission
(whether or not negligent) taken or omitted in good faith in connection with
this Plan.
3.4 All costs incurred in connection with the administration and operation
of this Plan shall be paid by the Company. Except for the express obligations
of the Company under this Plan, the Company shall have no liability with respect
to any matter related to the Plan or the Executives, including, but not limited
to, any tax liabilities or other costs.
4. AMENDMENT, SUSPENSION AND TERMINATION OF PLAN
The Compensation Committee reserves the right, at any time and from time to
time, to amend this Plan in any way, or to suspend or terminate this Plan,
effective as of the date specified by the Compensation Committee when it takes
such action, which date may be before or after the date the Compensation
Committee takes such action.
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5. OTHER PROVISIONS
5.1 Nothing contained in this Plan shall confer upon the Executives the
right to continue in the employ of the Company or any affiliated entity, or
interfere in any way with the right of the Company or any affiliated entity, to
terminate the employment of the Executives for any reason.
5.2 This Plan, and all matters related hereunder, shall be governed by and
construed in accordance with the laws of the State of New York. The headings of
the Sections of this Plan are for convenience of reference only and shall not
affect the interpretation of this Plan. All pronouns and similar references in
this Plan shall be construed to be of such number and gender as the context
requires or permits. If any provision of this Plan is determined to be
unenforceable for any reason, then that provision shall be deemed to have been
deleted or modified to the extent necessary to make it enforceable, and the
remaining provisions of this Plan shall not be affected.
2
<PAGE>
<PAGE>
LEASE
Between
LANDLORD
BDC REALTY CORP.
and
TENANT
SLEEPY'S, INC.
Dated: July __, 1996
Premises: 175 South Central Avenue
Bethpage, New York
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<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Article Page
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<S> <C> <C>
1. Demised Premises and Term of Lease 1
2. Rent 1
3. Impositions
4. Surrender
5. Insurance
6. Landlord's Right to Perform Tenant's Covenants
7. Repair and Maintenance of the Demised Premises
8. Compliance with Laws, Ordinances, Etc.
9. Changes and Alterations
10. Discharge of Liens
11. Use of Premises
12 No Waste
13 Entry on Demised Premises by Landlord
14 Indemnification of Landlord
15 Damage or Destruction
16 Condemnation
17 Subordination and Compliance with Mortgages
18 Assignments, Subleases and Transfers of Tenant's Interest
19 Conditional Limitations; Default Provisions
20 Statements
21 Invalidity of Particular Provisions
22 Notices
23 Condition of Title to Property and Quiet Enjoyment
24 Arbitration and Appraisal
25 Landlord Not Liable for Injury or Damage
26 No Rent Abatement
27 Brokerage
28 Environmental Requirements
29 Limitation on Landlord's Liability
30 Application Transfers and Return of Security
31 Option to Renew
32 Right of First Refusal
33 Option to Purchase
34 Miscellaneous
</TABLE>
(ii)
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<PAGE>
THIS LEASE is made and executed on this _____ day of July,
1996 between BDC REALTY CORP., a New York corporation having its principal place
of business at 175 South Central Avenue, Bethpage, New York 11714 ("Landlord")
and SLEEPY'S, INC. (f/k/a Bedding Discount Center, Inc.), a New York corporation
having its principal place of business at 175 South Central Avenue, Bethpage,
New York 11714 ("Tenant").
W I T N E S S E T H:
ARTICLE 1
DEMISED PREMISES AND TERM OF LEASE
Section 1.01 Landlord, in consideration of the premises and of
the rents hereinafter reserved and of the covenants, agreements and conditions
herein contained, to be kept and performed on the part of Tenant, hereby leases
to Tenant and Tenant hereby hires from Landlord all those certain lots, pieces
or parcels of land which are more particularly described in Exhibit A annexed
hereto and made a part hereof, together with all buildings and improvements
thereon, situate, lying and being in the County of Nassau and State of New York
(the "Demised Premises");
TO HAVE AND TO HOLD the Demised Premises unto Tenant, and,
subject to the provisions hereof, Tenant's successors and permitted assigns, for
a term of thirteen years commencing on the ____ day of July, 1996 (the
"Commencement Date") and expiring on the 31st day of July, 2009, unless this
Lease shall sooner terminate as hereinafter provided. As used herein the term
"Lease Year" shall mean a period of twelve (12) consecutive months, with the
first Lease Year beginning on the Commencement Date and each succeeding Lease
Year beginning on the anniversary date of the Commencement Date, provided,
however, if the Commencement Date occurs on a day other than the first day of a
month, then a Lease Year shall commence on the first day of the first month
following the Commencement Date except that the first Lease Year shall include
the period from the Commencement Date through the last day of the month in which
the Commencement Date occurs. As used herein, "Lease term" or "term of this
Lease" shall mean, prior to the exercise by Tenant of its right under Article 31
to extend the term of this Lease, the initial thirteen year term, and after the
exercise by Tenant of any such extension right, "Lease term" or "term of this
Lease" shall mean said initial term as extended.
Section 1.02 If Landlord shall be unable to give possession of
the Demised Premises on the Commencement Date for any reason whatsoever,
Landlord shall not be subject to any liability therefor, Tenant hereby expressly
waiving the provisions of any law to the contrary. Under such circumstances, the
rent reserved and covenanted to be paid as in this Lease provided, and the term
hereof shall not commence until possession of the Demised Premises is given or
the Demised Premises are available for occupancy by Tenant, and no such failure
to give possession on the
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Commencement Date shall in any way affect the validity of this Lease or the
obligations of Tenant hereunder, nor shall the same be construed in any wise to
extend the term of this Lease.
ARTICLE 2
RENT
Section 2.01
(a) Tenant covenants and agrees to pay to Landlord, in such
coin or currency of the United States of America as at the time of payment shall
be legal tender for the payment of public and private debts, at Landlord's
address specified in or furnished pursuant to Article 22 hereof, during the term
specified in Section 1.01, and in any properly exercised renewal term specified
in Article 31, a net rental at the annual rates set forth below. Such net annual
rental (hereinafter called the "Rent") shall be in addition to all other
payments to be made by Tenant as hereinafter provided and shall be paid in equal
monthly installments in advance on the first day of each calendar month during
the term of this Lease; the Rent for the first month of the term of this Lease
being due and payable by Tenant to Landlord upon the execution and delivery of
this Lease; and the Rent for the first and last calendar month of the term of
this Lease shall be apportioned, if necessary. Rent for the first Lease Year
shall be payable at the annual rate of Six Hundred Seventy-Nine Thousand Five
Hundred ($679,500) Dollars per year until the Addition Completion Date (as
hereinafter defined) at which time the annual rate shall increase to One Million
Thirty-Five Thousand ($1,035,000) Dollars per year. The Rent payable for each
Lease Year following the first Lease Year of the Lease term (each such Lease
Year being herein referred to as a "Succeeding Lease Year") shall be increased
each Lease Year to an amount equal to the product resulting from multiplying the
Rent payable during such immediately preceding Lease Year by a fraction the
numerator of which is the Price Index (as hereinafter defined) published for the
first calendar month of the Succeeding Lease Year with respect to which the Rent
is being adjusted and determined and the denominator of which is the Base Price
Index (as hereinafter defined). Notwithstanding the foregoing, in no event shall
the Rent for any Succeeding Lease Year be less than the Rent payable for the
immediately preceding Lease Year. Until such time as Landlord shall give Tenant
a notice setting forth the increased Rent for a Succeeding Lease Year due to an
increase in the Price Index, Tenant shall continue to pay the Rent then in
effect. Commencing on the first day of the month immediately following the
receipt of such notice from Landlord, and continuing thereafter, Tenant shall
pay as its monthly installment one-twelfth of the increased Rent for the Lease
Year in question plus an amount equal to the difference between the amount of
any and all previous monthly installments of Rent theretofore paid by Tenant for
such Lease Year and the amount required to have been paid at the increased Rent.
In calculating the Rent for the second Lease Year, the Rent payable for the
first Lease Year shall be deemed to be One Million Thirty-Five Thousand
($1,035,000) Dollars per year rather than the actual Rent payable for the first
Lease Year.
(b) As used herein the following terms shall have the
following respective meanings:
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(i) "Price Index" shall mean the "Revised Consumer
Price Index for All Urban Consumers, United States City Average, All Items (1982
- - 84 = 100)" published by the Bureau of Labor Statistics of the United States
Department of Labor;
(ii) "Base Price Index" shall mean the Price Index
published for the calendar month in which the Commencement Date occurs when
computing the adjustment for the second Lease Year, and thereafter the Base
Price Index shall mean the Price Index as published for the first calendar month
of the Lease Year immediately preceding the Lease Year for which an adjustment
is being computed (i.e., the Base Price Index shall change each year by a one
year period); and
(iii) "Addition Completion Date" shall mean the date
on which a temporary certificate of occupancy is issued for the Addition (as
defined in Section 34.08 hereof) currently being constructed at the Demised
Premises.
(c) In the event the Price Index shall hereafter be converted
to a different standard reference base or otherwise revised, the determination
of the Rent due hereunder shall be made with the use of such conversion factor,
formula or table for converting the Price Index as may be published by the
Bureau of Labor Statistics, or Prentice Hall, Inc. or any other nationally
recognized publisher of similar statistical information. If at any time during
the Lease term the Price Index shall no longer be published by said Bureau, then
any comparable index issued by said Bureau or similar agency of the United
States issuing similar indices shall be used for the foregoing purposes, the
same, however, to be appropriately adjusted in order to give effect to the
intent of the foregoing provisions of this Article. In the event that the U.S.
Department of Labor, Bureau of Labor Statistics, changes the publication
frequency of the Price Index so that a Price Index is not available to make a
cost-of-living adjustment as herein provided, the cost-of-living adjustment
shall be based on the percentage difference between the Price Index for the
closest preceding month for which a Price Index is available and the Base Price
Index.
Section 2.02 Tenant will pay the Rent without demand or notice
and without abatement, deduction or set-off, except as may be required or
permitted by this Lease, and will similarly pay, as additional rent, all other
payments which Tenant in any of the provisions of this Lease assumes or agrees
to pay, and, in the event of any nonpayment thereof, Landlord shall have (in
addition to all other rights and remedies) all the rights and remedies provided
herein or by law in the case of nonpayment of the Rent.
Section 2.03 Should Tenant fail to pay within ten (10) days of
the date when due any installment of Rent, additional rent, or any other sum
payable to Landlord under the terms of this Lease, then interest (as provided in
Section 2.04) on such sum shall accrue from and after the date on which any such
sum shall be due and payable, and such interest, together with a late charge
equal to the greater of 2% of the delinquent amount or $200, to cover the extra
expenses incurred by Landlord and involved in handling such delinquency, shall
be paid by Tenant to Landlord at the time of payment of the delinquent sum. If
Tenant shall issue a check to Landlord which is returned unpaid
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for any reason, Tenant shall pay Landlord an additional charge of $200 for
Landlord's expenses in connection therewith and thereafter all payments to
Landlord herein shall be made by unendorsed certified or official bank checks.
Section 2.04 Whenever this Lease refers to "interest", the
same shall be computed at an annual rate equal to the Prime Rate (as hereinafter
defined) plus four (4%) percent except where otherwise in this Lease a different
rate is specifically set forth. If, however, payment of interest at any such
rate by Tenant (or by the tenant then in possession having succeeded to the
Tenant's interest in accordance with the terms of this Lease) shall be unlawful,
then "interest" shall, as against such party, be computed at the maximum rate
lawfully payable by such party. "Prime Rate" shall mean the rate in effect at
the time in question quoted or announced by Citibank, N.A. in New York, New York
as its base rate.
Section 2.05 It is the purpose and intent of Landlord and
Tenant that the Rent shall be absolutely net to Landlord, so that this Lease
shall yield net to Landlord the Rent in each year during the term of this Lease,
and that all costs, fees, Impositions (as defined in Article 3 hereof), charges,
expenses, reimbursements and obligations of every kind and manner whatsoever
relating to the Demised Premises (except only certain taxes of Landlord as
provided in Section 3.02 and any payments on account of any existing fee
mortgage or on account of any mortgage which Landlord may in the future place
upon the fee interest in the Demised Premises) which may arise or become due
during the term of this Lease, shall be paid or discharged by Tenant as
additional rent, and Tenant hereby agrees to indemnify and to save Landlord
harmless from and against such costs, fees, charges, expenses, Impositions,
reimbursements and obligations and any interest thereon.
Section 2.06 In the event that Tenant is in arrears in payment
of the Rent, Impositions (as hereinafter defined) or other additional rent
hereunder, Tenant waives Tenant's right, if any, to designate the items against
which any payments made by Tenant are to be credited, and Tenant agrees that
Landlord may apply any payments made by Tenant to any items it sees fit,
irrespective of and notwithstanding any designation or request by Tenant as to
the items against which any such payments shall be credited. No payment by
Tenant or receipt by Landlord of a lesser amount than the correct Rent,
Imposition or other additional rent due hereunder shall be deemed to be other
than a payment on account, nor shall any endorsement or statement on any check
or any letter accompanying any check or payment be deemed an accord and
satisfaction, and Landlord may accept such check or payment without prejudice to
Landlord's right to recover the balance or pursue any other remedy in this Lease
or at law provided.
ARTICLE 3
IMPOSITIONS
Section 3.01 Tenant shall pay (except as otherwise provided in
Sections 3.02 and 3.04), before any fine, penalty, interest or cost may be added
thereto or become due or be imposed
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<PAGE>
by operation of law for the non-payment thereof, (a) all taxes, assessments,
water and sewer rents, rates, charges (including without limitation, public
utility charges), license, permit and other fees, excises, levies and other
governmental charges, general and special, ordinary and extraordinary,
unforeseen and foreseen, of any kind and nature whatsoever, which at any time
during the term of this Lease may be assessed, levied, confirmed, imposed upon
or grow or become due and payable out of or in respect of, or become a lien on,
(i) the Demised Premises or any part thereof or any appurtenances thereto or the
sidewalk or streets in front of or adjoining the Demised Premises, or upon any
personal property located in, on or used in connection with the Demised
Premises, (ii) the rent, income or other payments received by Tenant or anyone
claiming by, through or under Tenant, (iii) any use or occupation of the Demised
Premises, (iv) such franchise as may be appurtenant to the use of the Demised
Premises, (v) this transaction and (vi) any document to which Tenant is a party
creating or transferring an interest or estate in the Demised Premises, (b) all
taxes charged, laid, levied, assessed or imposed in lieu of or in addition to
any of the foregoing under or by virtue of all present or future laws,
ordinances, requirements, orders, directions, rules or regulations of the
federal, state, county and municipal governments and of all other governmental
authorities whatsoever and (c) all fees and charges of public and governmental
authorities for construction, maintenance, occupation or use during the term of
any vault, passageway or space in, over or under any sidewalk or street on or
adjacent to the Demised Premises, or for construction, maintenance or use during
the term of this Lease of any part of any building covered hereby within the
limits of any street (all such taxes, assessments, water and sewer rents, rates,
charges, fees, excises, levies, license, permit and other fees and other
governmental charges being herein referred to as "Impositions", and any of the
same being herein referred to as an "Imposition"); provided, however, that:
(a) if, by law, any Imposition may at the option of the
taxpayer be paid in installments (whether or not interest shall accrue on the
unpaid balance of such Imposition), to the extent permitted by any existing or
future mortgage affecting Landlord's interest in the Demised Premises, Tenant
may exercise the option to pay the same (and any accrued interest on the unpaid
balance of such Imposition) in installments, and in such event shall pay such
installments as may become due during the term of this Lease as the same
respectively become due and before any fine, penalty, further interest or cost
may be added thereto, provided, however, that all installments of any such
Imposition which are to become due and payable after the expiration or sooner
termination of the term of this Lease shall be paid by Tenant (1) at least one
(1) year prior to the date of such expiration, (2) upon such sooner termination
or (3) if such Imposition is levied within one (1) year of such expiration, on
the date of such levy; and
(b) any Imposition (other than Impositions which have been
converted into installment payments by Tenant as provided in subdivision (a) of
this Section 3.01) relating to a fiscal period of the taxing authority, a part
of which is included within the term of this Lease and a part of which is
included after the expiration of the term of this Lease, shall (whether or not
such Imposition shall be assessed, levied, confirmed, imposed upon or in respect
of or become a lien upon the Demised Premises, or shall become payable, during
the term of this Lease) be apportioned between Landlord and Tenant as of the
expiration of this Lease, so that Tenant shall pay that portion of such
Imposition as is represented by a fraction the numerator of which is the number
of days in such fiscal
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<PAGE>
period that fall within the term of this Lease and the denominator of which is
the number of days in the fiscal period in question; except that if Tenant shall
be in default in the performance of any of Tenant's monetary covenants,
agreements and undertakings in this Lease and such default shall not have been
cured within the applicable grace period, if any, set forth in Section 19.01,
then, to the extent of the amount of any such monetary default, Tenant shall not
be entitled to an apportionment.
Section 3.02 Nothing herein contained shall require Tenant to
pay municipal, state or federal income taxes assessed against Landlord,
municipal, state or federal capital levy, estate, succession, inheritance or
transfer taxes of Landlord, or corporation franchise taxes imposed upon any
corporate owner of the fee interest in the Demised Premises; provided, however,
that if at any time during the term of this Lease the methods of taxation
prevailing at the commencement of the term hereof shall be altered so that in
lieu of or as a substitute for the whole or any part of the taxes, assessments,
levies, impositions or charges now levied, assessed, or imposed on real estate
and the improvements thereon, there shall be levied, assessed and imposed, (a) a
tax, assessment, levy, imposition or charge, wholly or partially as a capital
levy or otherwise, on the rents received from real estate and the improvements
thereon, or (b) a tax, assessment, levy, imposition or charge measured by or
based in whole or in part upon the Demised Premises and imposed upon Landlord,
or (c) a license fee measured by the Rent and/or additional rent payable by
Tenant under this Lease, then all such taxes, assessments, levies, impositions
or charges or the part thereof so measured or based, shall be deemed to be
included within the term "Impositions" to the extent that such Impositions would
be payable if the Demised Premises were the only property of Landlord subject to
such Impositions, and Tenant shall pay and discharge the same in the same manner
as herein provided for the payment of Impositions.
Section 3.03 Tenant will furnish to Landlord, within twenty
(20) days prior to the date when any Imposition would become delinquent,
official receipts of the appropriate taxing authority, or other evidence
satisfactory to Landlord, evidencing the payment thereof.
Section 3.04
(a) Tenant shall have the right to contest in good faith the
amount or validity, in whole or in part, of any Imposition by appropriate
proceedings, diligently conducted, but only after payment of such Imposition,
unless such payment would operate as a bar to such contest or interfere
materially with the prosecution thereof, in which event, notwithstanding the
provisions of Section 3.01 or Section 3.06, Tenant may postpone or defer payment
of such Imposition during the pendency of such proceedings if:
(i) neither the Demised Premises nor any part thereof
would by reason of such postponement or deferment be in danger of being
forfeited or lost; and
(ii) Landlord would not be subjected to any criminal
sanctions or penalties; and
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<PAGE>
(iii) Tenant shall have deposited with Landlord, or
with any mortgagee of Landlord's interest in the Demised Premises designated by
Landlord, the amount so contested and unpaid, together with all interest and
penalties in connection therewith and all charges that will or might be assessed
against or become a charge on the Demised Premises or any part thereof in such
proceedings, or shall have furnished to Landlord or such mortgagee other
security (which may be in negotiable obligations of the United States of
America), reasonably satisfactory to Landlord and such mortgagee, sufficient to
cover said amount, interest, penalties and charges for the period which such
proceedings may reasonably be expected to take.
(b) Upon the termination of any such proceeding, Tenant shall
pay, or may direct Landlord or such mortgagee, as the case may be, to pay out of
the amounts deposited by Tenant with Landlord or such mortgagee pursuant to
clause (iii) of subsection (a) of this Section 3.04, the amount of such
Imposition or part thereof as finally determined in such proceeding, the payment
of which was deferred during the prosecution of such proceeding, together with
any costs, fees, interest, penalties or other liabilities in connection
therewith, and, upon such payment, Landlord or such mortgagee, as the case may
be, shall return, without interest, the balance of the amount, if any, deposited
with it with respect to such Imposition as aforesaid. If, at any time during the
continuance of such proceeding, Landlord or such mortgagee, as the case may be,
shall deem the amount deposited as aforesaid insufficient, Tenant shall, upon
demand, make an additional deposit of such sum as Landlord or such mortgagee, as
the case may be, reasonably requests, and upon failure of Tenant so to do, the
amount theretofore deposited may be applied by Landlord or such mortgagee, as
the case may be, to the payment, removal and discharge of such Imposition, the
interest and penalties in connection therewith and any costs, fees or other
liability accruing in any such proceedings, and the balance, if any, shall be
returned to Tenant.
(c) Landlord or Tenant shall have the right to seek a
reduction in the valuation of the Demised Premises assessed for tax purposes, it
being understood and agreed that, except for the first and last years of the
term of this Lease, Tenant shall have the prior right to seek such reduction and
to prosecute any action or proceeding in connection therewith. In the event that
for any year, other than the first and last years of the term of this Lease,
Tenant elects not to seek such a reduction, Tenant shall so notify Landlord not
later than thirty days prior to the last day that an application for a reduction
can be made, to permit Landlord to seek a reduction for the applicable year.
Regardless of whether Landlord or Tenant seeks such reduction, any refund and
all reasonable expenses and fees incurred by Landlord or Tenant in connection
therewith shall be apportioned in the proportion that each party's share of the
refund bears to the total refund. If any tax refund payable as a result of any
proceeding to review said assessed valuation is based upon a payment made by
Tenant and does not to any extent pertain to a period before the commencement or
after the expiration of the term of this Lease, Tenant shall be authorized to
collect the same, provided that no Event of Default (as hereinafter defined)
shall then exist hereunder. However, if such tax refund shall to any extent
pertain to a period before the commencement or after the expiration of the term
of this Lease, Landlord shall collect the same and shall be entitled to retain
the same, subject to apportionment as aforesaid, and to be reimbursed as
additional rent hereunder for all reasonable expenses and fees incurred by
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Landlord in connection therewith, in the proportion that Landlord's share of the
refund bears to the total refund.
Section 3.05 Landlord shall not be required to join in any
proceedings referred to in Section 3.04 unless the provisions of any law, rule
or regulations at the time in effect shall require that such proceedings be
brought by and/or in the name of Landlord or any owner of the Demised Premises,
in which event Landlord shall join in such proceedings or permit the same to be
brought in its name. Landlord shall not be subjected to any liability for the
payment of any costs or expenses in connection with any such proceedings, and
Tenant will indemnify and save harmless Landlord from any such costs and
expenses (including attorneys' fees and disbursements) incurred by Landlord with
respect thereto. Except as otherwise provided in this Lease, Tenant shall be
entitled to any refund of any Imposition and penalties or interest thereon
received by Landlord which was paid by Tenant, or which was paid by Landlord but
previously reimbursed to Landlord in full by Tenant.
Section 3.06 The certificate, advice, notice or bill of the
appropriate official designated by law to make or issue the same, or to receive
payment of any Imposition, of non-payment of such Imposition shall be prima
facie evidence that such Imposition is due and unpaid at the time of the making
or issuance of such certificate, advice, notice or bill.
Section 3.07 Landlord appoints Tenant the attorney-in-fact of
Landlord for the purpose of making all payments to be made by Tenant pursuant to
any of the provisions of this Lease to persons or entities other than Landlord.
In case any person or entity to whom any sum is directly payable by Tenant under
any of the provisions of this Lease shall refuse to accept payment of such sum
from Tenant, Tenant shall thereupon give written notice of such fact to Landlord
and shall pay such sum directly to Landlord, and Landlord shall thereupon pay
such sum to such person or entity.
Section 3.08 At the option of Landlord, Tenant's obligations
under Section 3.01 to pay real estate taxes shall be discharged as set forth in
this Section 3.08:
(a) Upon request by Landlord, Tenant shall deposit with
Landlord a sum equal to the accrued but unpaid real estate taxes for the Demised
Premises and on the first day of each and every month thereafter during the term
of this Lease, a sum equal to one-twelfth (1/12) of the annual real estate taxes
assessed or imposed against the Demised Premises for the then current tax year,
the intent being that Landlord shall have on hand at all times a deposit at
least equal to the accrued amount of real estate taxes. (The funds deposited by
Tenant with Landlord pursuant to this Section 3.08 which have not been applied
by Landlord pursuant to this Section shall be referred to herein as the
"Deposit".) In the event that the Deposit does not cover the accrued amount of
real estate taxes, then Tenant shall forthwith deposit with Landlord the
deficiency. If the amount of the Deposit is in excess of the accrued real estate
taxes, such excess shall be credited toward future deposits required to be made
under this Section 3.08. If permitted by law, the Deposit shall bear no interest
and may be commingled with the funds of Landlord. As and when the real estate
taxes become due and payable, Landlord shall promptly pay the same from the
Deposit and forward to Tenant receipted bills or other satisfactory evidence
showing such payment and Tenant shall not be required to furnish the
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proof of payment of such taxes provided for in Section 3.03 hereof. Landlord
shall have no obligation to use the Deposit to pay any installment of taxes
prior to the last day on which payment thereof may be made without penalty or
interest. In the event that the amount of the real estate taxes assessed or
imposed against the Demised Premises for the then current tax year has not been
fixed at the time when any such monthly deposit is herein required to be made,
Tenant shall make such deposit based upon the amount of the real estate taxes
assessed or imposed against the Demised Premises for the preceding tax year,
subject to adjustment as and when the amount of such real estate taxes for the
then current tax year is ascertained. If Tenant shall have made the deposits
required by this Section and Landlord fails to pay any installment of real
estate taxes prior to the time when any interest or penalty would accrue
thereon, Tenant may, at its option, pay any such installment together with
interest or penalties thereon, if any, and deduct the amount so paid, with
interest thereon at five (5%) percent per annum from the date of such payment,
from the next succeeding installment(s) of Rent and/or from any succeeding tax
deposits which would otherwise be due and payable by Tenant to Landlord. In
addition to any other remedies available to Tenant, Tenant shall have recourse
against the Deposit with respect to any amount paid by Tenant pursuant to the
previous sentence with respect to real estate taxes for the Demised Premises. If
Tenant is in default in the performance of any of Tenant's monetary covenants,
agreements and undertakings in this Lease (including without limitation the
payment of all Rent and additional rent due under this Lease) and such default
shall not have been cured within the applicable grace period, if any, set forth
in Section 19.01, then, to the extent of the amount of any such monetary
default, Landlord, at its option, may apply the Deposit to cure such default.
Upon such application, Tenant shall promptly deposit with Landlord, the full
amount then required under this Section 3.08, which amount shall not be
diminished because of such application. Upon an assignment by Landlord of its
interest in this Lease, Landlord shall have the right to pay over the Deposit to
the assignee and Landlord shall thereupon be completely released from all
liability with respect to the Deposit and Tenant shall look solely to the
assignee in reference thereto. This provision shall apply to every transfer of
the Deposit to a new assignee.
(b) Notwithstanding the provisions of subsection (a) of this
Section 3.08, if the provisions of any mortgage of Landlord's fee interest in
Demised Premises require deposits for real estate taxes to be made with the
holder of such mortgage, Tenant shall make such tax deposits with the holder of
such mortgage instead of with Landlord in accordance with, and subject to, the
provisions of such mortgage, which provisions of such mortgage with regard to
such tax deposits shall control and supersede the provisions of subsection (a)
of this Section 3.08.
ARTICLE 4
SURRENDER
Section 4.01 Upon the expiration or earlier termination of
this Lease, Tenant shall peaceably surrender the Demised Premises, including all
buildings, replacements, changes, additions and improvements constructed,
erected, added or placed by Tenant thereon, unto the possession and use of
Landlord without delay and, except for reasonable wear and tear and subject to
the provisions
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of Article 15, in good order, condition and repair, broom clean and free and
clear of all lettings and occupancies and of all liens and encumbrances, other
than those, if any, as to which this Lease is now subject or as to which
Landlord expressly consents in writing. No agreement to accept a surrender of
all or any part of the Demised Premises shall be valid unless in writing and
signed by Landlord. The delivery of keys to any employee of Landlord or of its
agent shall not operate as a termination of this Lease or a surrender of the
Demised Premises. If Tenant shall at any time request Landlord to sublet the
Demised Premises for Tenant's account, Landlord or its agent is authorized to
receive said keys for such purposes without releasing Tenant from any of its
obligations under this Lease, and Tenant hereby releases Landlord from any
liability for loss or damage to any of Tenant's property in connection with such
subletting.
Section 4.02 If Landlord so elects, Tenant, at its sole cost
and expense, and prior to the expiration or earlier termination of this Lease,
shall (a) remove any work, alteration, addition or improvement made by Tenant to
the Demised Premises (in no event shall the Addition be deemed to be an
improvement made by Tenant), (b) restore the Demised Premises to the condition
existing prior to the performance of such work, alteration, addition or
improvement and (c) repair all damage to the Demised Premises caused by or
resulting from such removal. Tenant, at its sole cost and expense, and also
prior to the expiration or earlier termination of this Lease, shall remove all
of its or any subtenant's furniture, trade fixtures and equipment and other
personal property (not constituting part of the Demised Premises) and shall
cause the building to be restored to its condition prior to the installation and
removal of such furniture, trade fixtures and equipment and personal property
and cause any damage due to such removal to be repaired.
Section 4.03 Any property of Tenant or any subtenant which
shall remain on the Demised Premises after the expiration or earlier termination
of this Lease and the removal of Tenant from the Demised Premises may, at the
option of Landlord, be deemed to have been abandoned by Tenant or any such
subtenant and either may be retained by Landlord as its property, stored by
Landlord at Tenant's expense and risk, or be disposed of, without
accountability, in such manner as Landlord may see fit and at Tenant's expense.
Section 4.04 Landlord shall not be responsible for any loss or
damage occurring to any property owned by Tenant or any subtenant.
Section 4.05 If Tenant shall default in surrendering the
Demised Premises upon the expiration or termination of the Lease term, Tenant's
occupancy subsequent to such expiration or termination, whether or not with the
consent or acquiescence of Landlord, shall be deemed to be that of a tenancy at
will and in no event from month-to-month or from year-to-year, and it shall be
subject to all the terms, covenants and conditions of this Lease applicable
thereto, except the Rent shall be 150% the amount payable in the last year of
the Lease term, and no extension or renewal of the Lease shall be deemed to have
occurred by such holding over.
Section 4.06 The provisions of this Article 4 shall survive
the expiration of this Lease.
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ARTICLE 5
INSURANCE
Section 5.01 Tenant, at its sole cost and expense, shall keep
all buildings, improvements and equipment on, in or appurtenant to the Demised
Premises at the commencement of the term of this Lease and thereafter erected or
installed, insured, during the term of this Lease, against loss or damage by
fire, lightning, windstorm, hail, explosion, vandalism and malicious mischief,
riot and civil commotion, aircraft, vehicles and smoke, and all other standard
extended coverage from time to time available including an inflation guard
endorsement (with provisions for deduction of not more than $1,000), in an
amount sufficient to prevent Landlord or Tenant from being a co-insurer within
the terms of the policy or policies in question and in no event less than 100%
of the full replacement cost thereof, exclusive of the cost of foundations,
excavations and footings below the lowest basement floor. Such value shall be
determined from time to time, at Tenant's expense, but not more frequently than
once in any thirty-six (36) consecutive calendar months, at the request of
Landlord, by one of the insurers or, at the option of Landlord, by an appraiser,
architect or contractor designated by Landlord. No omission on the part of
Landlord to request any such determination shall relieve Tenant of its
obligations hereunder. Notwithstanding the foregoing, if such insurance or other
coverage is required by the holder of any fee mortgage on Landlord's interest in
the Demised Premises, Tenant shall be bound by and comply with the requirements
of such mortgage, provided Landlord informs Tenant of such requirements.
Section 5.02 Tenant, at its sole cost and expense, shall
maintain:
(a) comprehensive general public liability insurance against
claims for bodily injury, death or property damage, occurring on, in or about
the Demised Premises, including without limitation, the parking areas, if any,
and any vehicles operated or parked thereon or the elevators or any escalator
therein, and on, in or about the adjoining streets, property and passageways,
such insurance to afford minimum protection, during the term of this Lease, in
single limit of not less than $5,000,000.00 in respect of bodily injury or death
to any one person and of not less than $5,000,000.00 in any one accident, and of
not less than $5,000,000.00 for property damage, which amounts shall be subject
to increase over the term of the Lease as provided in subsection (f) of this
Section 5.02;
(b) boiler and machinery insurance, provided the buildings or
other improvements now or hereafter located on the Demised Premises during the
term of this Lease contain equipment of the nature ordinarily covered by such a
policy;
(c) extended coverage fire and casualty insurance insuring
Tenant's leasehold improvements, merchandise, trade fixtures, furnishings,
operation equipment and other property for the full replacement value thereof;
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(d) rent insurance covering risks referred to in Section 5.01
(including those embraced by standard extended coverage endorsements) in an
amount sufficient to prevent Tenant from being a co-insurer within the terms of
the applicable policies, but in any event in an amount not less than the Rent,
Impositions and other reasonably estimated additional rent hereunder for a
period of twenty-four (24) months; and Tenant hereby assigns to Landlord so much
of its interest in the proceeds of such insurance so that in the event the
Demised Premises shall be damaged to the extent of $10,000 or more, there shall
be paid to Landlord so much of the proceeds of such insurance, to the extent of
the recovery, as shall in the aggregate equal the Rent, Impositions and other
estimated additional rent for a period of twenty-four (24) months. Such amount
shall be paid to Landlord on account of, and Tenant shall receive a credit
against, the Rent, Impositions and other additional rent payable by Tenant until
the completion of the restoration of the buildings and other improvements, if
any, located on the Demised Premises, at which time, provided no Event of
Default shall then exist, the balance, if any, of such amount shall be returned
to Tenant;
(e) if a sprinkler system shall be located in any portion of
the Demised Premises, sprinkler leakage insurance in amounts and forms
satisfactory to Landlord; and
(f) such other and/or additional insurance, in such amounts,
as may from time to time be required by (i) Landlord against the hazards
expressly covered by the provisions of this Section 5.02 as well as against any
other hazards as are commonly insured against in respect of similarly situated
premises, or (ii) the holder of any fee mortgage on Landlord's interest in the
Demised Premises.
Section 5.03 Tenant may effect for its own account any
insurance not required under the provisions of this Lease, provided same does
not directly or indirectly result in a diminution of the insurance coverage
required to be furnished to Landlord and provided, further, that Landlord shall
be named as an additional insured thereunder. Tenant shall promptly notify
Landlord of the issuance of any such insurance and of the details thereof.
Section 5.04 All insurance provided for in this Article shall
be effected under standard form, valid and enforceable policies issued by
insurers of recognized responsibility, which are well rated by a national rating
organization, with a rating sufficient to satisfy the rating requirements
provided for in any Existing Fee Mortgages (as hereinafter defined), licensed to
do business in the State of New York and approved by Landlord, which approval
shall not be unreasonably withheld. Upon the execution of this Lease, and
thereafter not less than thirty (30) days prior to the respective expiration
dates of the expiring policies theretofore furnished pursuant to this Article,
and not less than fifteen (15) days after the issuance of any new or additional
policies to be furnished pursuant to this Article, originals or certified copies
of the policies (or, in the case of general public liability insurance,
certificates of the insurers satisfactory to Landlord) bearing notations
evidencing the payment of premiums, or accompanied by other evidence of such
payment satisfactory to Landlord, shall be delivered by Tenant to Landlord or as
Landlord may direct (subject to the provisions of any fee mortgage of Landlord's
interest in the Demised Premises).
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Section 5.05 All policies of insurance provided for in
Sections 5.01 and 5.02 or carried pursuant to Section 5.03 shall name Landlord
and Tenant as parties insured, and shall also name the holders of all fee
mortgages on Landlord's interest in the Demised Premises as parties insured,
under a standard mortgagee endorsement. The loss, if any, under any policies
provided for in this Article 5 shall be adjusted with the insurance companies by
Landlord, Tenant and the holder of each fee mortgage. The proceeds of any such
insurance as so adjusted, shall be payable to the holders of the aforesaid
mortgages as their interests may appear, and then (except for the proceeds of
rent insurance which are payable to Landlord pursuant to subdivision (d) of
Section 5.02), to the Trustee referred to in Section 15.02 for the purposes set
forth in Article 15. All such policies shall provide that the loss, if any,
thereunder shall be adjusted and paid as hereinabove provided. Each such policy
shall contain a provision (if obtainable) that no act or omission of Tenant
shall affect or limit the obligation of the insurance company so to pay the
amount of any loss sustained and an agreement by the insurer that such policy
shall not be cancelled without at least thirty (30) days' prior written notice
to Landlord and the holder of each fee mortgage encumbering the Demised
Premises.
Section 5.06 Upon the expiration of this Lease, the unearned
premiums upon any such insurance policies lodged with Landlord by Tenant which
are transferable and which Landlord elects to have transferred to Landlord,
shall be apportioned, provided that if Tenant shall then be in default in the
payment of any sums required to be paid by Tenant under this Lease, then, to the
extent of the amount of any such default, Tenant shall not be entitled to an
apportionment.
Section 5.07 Any insurance provided for in this Article 5 may
be effected by a policy or policies of blanket insurance, provided that the same
shall be satisfactory to the holders of all fee mortgages affecting the Demised
Premises, and further provided that (a) the amount of the total insurance
expressly allocated to and reserved for the Demised Premises shall be such as to
furnish the equivalent protection of separate policies in the amounts herein
required and (b) in all other respects any such policy or policies shall comply
with the other provisions of this Lease, except that no such policy shall be
submitted to Landlord less than thirty (30) days prior to the expiration of an
existing policy. It shall not be necessary to deliver the original of any
blanket policy to Landlord, or as Landlord may direct (unless required by the
holder of a fee mortgage), but Landlord shall be furnished with a duplicate
original or certified copy of the policy and an original endorsement thereto
naming Landlord as an insured and providing for the coverage set forth in
Sections 5.05 and 5.08.
Section 5.08 All insurance policies which Tenant is required
to obtain under this Article 5 shall contain a waiver of subrogation in favor of
Landlord. If Landlord, in its sole discretion, obtains any insurance policies
covering the Demised Premises, all such policies shall contain a waiver of
subrogation in favor of Tenant.
ARTICLE 6
LANDLORD'S RIGHT TO PERFORM TENANT'S COVENANTS
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Section 6.01 If Tenant shall at any time fail to pay any
Imposition in accordance with the provisions of Article 3, or to pay for or
maintain any of the insurance policies provided for in Article 5, or to make any
other payment or perform any other act on its part to be made or performed
hereunder, then Landlord, after five (5) days' notice to Tenant (or, in case of
any emergency, on such notice, or without notice, as may be reasonable under the
circumstances) and without waiving, or releasing Tenant from any obligation of
Tenant under this Lease, may (but shall not be required to):
(a) pay any Imposition payable by Tenant pursuant to the
provisions of Article 3, or
(b) pay for and maintain any of the insurance policies
provided for in Article 5, or
(c) make any other payment or perform any other act on
Tenant's part to be made or performed as in this Lease provided,
and may enter upon the Demised Premises for such purpose and take all such
action thereon as may be necessary therefor.
Section 6.02 All sums so paid by Landlord and all costs and
expenses incurred by Landlord in connection with the performance of any such
act, together with interest thereon from the respective dates of Landlord's
making of each such payment or incurring of each such cost and expense, shall
constitute additional rent payable by Tenant under this Lease and shall be paid
by Tenant to Landlord on demand. Landlord shall not be limited in the proof of
any damages which Landlord may claim against Tenant arising out of Tenant's
failure to provide and keep in force insurance as required under this Lease, to
the amount of the insurance premium or premiums not paid or incurred by Tenant
with respect to such insurance, but Landlord shall also be entitled to recover
as damages for such breach, the uninsured amount of any losses, damages, costs
and expenses suffered or incurred by Landlord to the extent any such loss,
damage, cost or expense would have been covered if the insurance required under
this Lease had been maintained by Tenant.
ARTICLE 7
REPAIR AND MAINTENANCE OF THE DEMISED PREMISES
Section 7.01
(a) Tenant shall, at all times during the term of this Lease,
and at its own cost and expense, put, keep, replace, rebuild and maintain in
good repair, in a neat, good and safe order and condition and free of vermin,
the buildings, improvements, parking areas, driveways, sidewalks, loading docks,
landscaping, shrubbery and plantings on the Demised Premises existing at the
commencement of the term of this Lease or thereafter erected, or now or
hereafter forming part of the Demised Premises, and the full equipment, fixtures
and appurtenances, both inside and outside, of all of such buildings and
improvements, whether extraordinary or ordinary, howsoever the
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necessity or desirability for repair may occur, and whether or not necessitated
by wear, tear, obsolescence or defects, latent or otherwise. Tenant shall use
all reasonable precaution to prevent waste, damage or injury to the Demised
Premises and all of the buildings, improvements, parking areas, driveways,
sidewalks, loading docks, landscaping, shrubbery and plantings now or hereafter
on or forming a part of the Demised Premises. Tenant shall also, at its sole
cost and expense, put, keep, replace and maintain in thorough repair and in a
neat, good and safe order and condition, and free from dirt, snow, ice, rubbish
and other obstructions or encumbrances, the sidewalks, areas, fuel chutes,
sidewalk hoists, railings, gutters and curbs in front of and adjacent to the
Demised Premises and water and sewer connections, gas pipes, wires and conduits
for electricity and the like servicing the Demised Premises.
(b) Landlord shall not be required to furnish to Tenant any
facilities or services of any kind whatsoever during the term of this Lease,
such as, but not limited to, water, steam, heat, gas, hot water, electricity,
light and power, and Tenant covenants to obtain and pay for same (including
wages of employees engaged in the operation and maintenance of the Demised
Premises).
(c) Except as specified in Section 34.08 hereof, Landlord
shall in no event be required to make any alterations, rebuildings,
replacements, changes, additions, improvements or repairs to the Demised
Premises during the term of this Lease.
ARTICLE 8
COMPLIANCE WITH LAWS, ORDINANCES, ETC.
Section 8.01 Tenant shall not use or occupy or permit the
Demised Premises to be used or occupied, nor do or permit anything to be done in
or on the Demised Premises, which would in any way violate any certificate of
occupancy affecting the Demised Premises, or make void or voidable any insurance
then in force with respect thereto, or which may make it difficult or impossible
to obtain the fire or other insurance required to be furnished by Tenant under
this Lease, or as will cause or be apt to cause injury to the buildings or other
improvements located on the Demised Premises or any part thereof, or as will
constitute a public or private nuisance. Tenant, at its sole cost and expense,
shall promptly comply with all present and future laws (including without
limitation all environmental laws), ordinances, orders, rules, regulations and
requirements, foreseen and unforeseen, ordinary as well as extraordinary, of all
federal, state and municipal governments, courts, departments, commissions,
boards and officers, any national or local Board of Fire Underwriters, any
insurance underwriting board or insurance inspection bureau, and of all
insurance carriers in respect of the Demised Premises, or any other body
exercising functions similar to those of any of the foregoing, which may be
applicable to the Demised Premises or any part thereof and the sidewalks, curbs,
streets and roads adjoining the Demised Premises, or to the use or manner of use
of the Demised Premises, or to the owners, tenants or occupants of the Demised
Premises, even though for compliance therewith such law, ordinance, rule, order,
regulation or requirement may necessitate structural changes, repairs or
improvements, or changes to the use or application of portions of the
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Demised Premises, or the removal of hazardous waste or other materials or any
encroachments or projections, ornamental, structural or otherwise, onto or over
the streets adjacent to the Demised Premises, or onto or over other property
contiguous or adjacent thereto, and even though compliance with the provisions
of this Section 8.01 may interfere with the use and enjoyment of the Demised
Premises. Tenant shall protect, hold harmless and indemnify Landlord from and
against all fines, penalties and claims for damages of every kind and nature,
including, but not limited to clean up costs, arising out of Tenant's failure to
comply with this Section 8.01, the intention of the parties being that, except
as otherwise specifically provided herein, Tenant shall discharge and perform
all of the obligations of Landlord, as well as all of the obligations of Tenant,
with respect to the Demised Premises during the term of this Lease, and shall
save harmless Landlord therefrom, so that at all times the rental of the Demised
Premises shall be net to Landlord without deduction or expenses on account of
any such law, ordinance, rule, order, regulation or requirement, or the
necessity for compliance therewith, whatsoever it may be.
Section 8.02
(a) Subject to the terms and conditions of this Section 8.02,
Tenant shall have the right to contest by appropriate proceedings, diligently
conducted in good faith, in the name of Tenant or, subject to the last sentence
of this Article 8, in the name of Landlord or of Landlord and Tenant, without
cost or expense to Landlord, the validity or application of any law, ordinance,
order, rule, regulation or requirement of the nature referred to in Section
8.01. If by the terms of any such law, ordinance, order, rule, regulation or
requirement, compliance therewith pending the prosecution of any such proceeding
may legally be delayed without the incurrence of any lien, charge or liability
of any kind against the Demised Premises or Tenant's leasehold interest therein
and without subjecting Tenant or Landlord to any liability, civil or criminal,
for failure to comply therewith and without violating the provisions of any fee
mortgage affecting the Demised Premises, Tenant may delay compliance therewith
until the final determination of such proceeding. If any lien, charge or civil
liability would be incurred by reason of any such delay, Tenant nevertheless,
with the prior consent of Landlord and, if required by any mortgagee of
Landlord's fee interest in the Demised Premises, with the prior consent of such
mortgagee, may contest and delay compliance as aforesaid, provided that such
delay would not subject Landlord to criminal liability and Tenant (i) furnishes
to Landlord security, satisfactory to Landlord and any such fee mortgagee,
against any loss or injury by reason of such contest or delay and (ii)
prosecutes the contest with due diligence.
(b) Landlord shall not be required to join in any proceeding
referred to in subsection (a) of this Section unless the provisions of any
applicable law, rule or regulation at the time in effect shall require that such
proceeding be brought by and/or in the name of Landlord, in which event Landlord
shall join in such proceeding or permit the same to be brought in its name, but
Tenant, as additional rent hereunder, shall reimburse Landlord for any
out-of-pocket expense incurred by Landlord in connection therewith (including
attorneys' fees and disbursements).
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ARTICLE 9
CHANGES AND ALTERATIONS
Section 9.01
(a) Except as hereinafter provided and as provided in Section
34.08 hereof, Tenant, without Landlord's prior written consent, shall not make
any changes, alterations, improvements or additions to the Demised Premises or
any portion thereof. Provided that there shall not then exist any Event of
Default and that Tenant shall have taken occupancy of the Demised Premises,
Tenant, upon forty-five (45) days notice to Landlord, unless a longer notice
period is required herein, shall have the right at any time and from time to
time during the term of this Lease to make, at its sole cost and expense,
interior changes and alterations in or to the building (which term, whenever
used in this Lease, shall include buildings if there be more than one) located
on the Demised Premises, subject, however, in all cases to subsection (b) of
this Section.
(b) Any changes, alterations, improvements, additions, repairs
and/or restorations which Tenant is either required or permitted to make under
this Lease, including without limitation any interior, structural and/or
non-structural changes or alterations, shall in all cases be made subject to the
following:
(i) no change or alteration of any kind shall be made
which would prevent or interfere with the performance of Tenant's obligations
under Section 8.01 hereof or tend to reduce or impair the value, rental, rental
value, gross sales, rentability, structural strength or usefulness of the
Demised Premises (any dispute in connection therewith to be determined by
arbitration pursuant to Article 24);
(ii) no change or alteration of any kind shall be
made which would give to any owner, lessee or occupant of any other property or
to any other person or corporation any easement, right-of-way or any other right
over the Demised Premises;
(iii) no change or alteration affecting the roof of
the building on the Demised Premises, or any portion thereof, shall be made
without the Landlord's prior written consent;
(iv) no change or alteration involving an estimated
cost of more than $200,000.00 shall be made without the prior written consent of
Landlord;
(v) no changes or alterations involving an aggregate
estimated cost of more than $300,000.00 to be made in any twelve month period
shall be made without the prior consent of Landlord;
(vi) no change or alteration shall be undertaken
until all plans and specifications shall be filed with and approved by all
municipal departments and governmental subdivisions having jurisdiction and
Tenant shall have procured and paid for, so far as the same may
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be required from time to time, all permits and authorizations of all municipal
departments and governmental subdivisions having jurisdiction. (Landlord shall
join in the application for such permits or authorizations whenever such joinder
is necessary, but without any liability or expense to Landlord.);
(vii) any changes or alterations involving in the
aggregate an estimated cost of more than $50,000.00 shall be conducted under the
supervision of an architect or engineer selected and paid for by Tenant and
reasonably approved in writing by Landlord, and no such change or alteration
shall be made except in accordance with detailed plans and specifications and
cost estimates prepared and approved by such architect or engineer and by
Landlord;
(viii) any change or alteration shall be made
promptly, in a good and workmanlike manner and in compliance with all applicable
permits, authorizations and building and zoning laws and with all other laws,
ordinances, orders, rules, regulations and requirements of all federal, state
and municipal governments, departments, commissions, boards and officers, any
national or local Board of Fire Underwriters, or any other body hereafter
exercising functions similar to those of any of the foregoing, and the consent
of the holder of each fee mortgage affecting the Demised Premises shall be
obtained if required under the terms of any such mortgage;
(ix) before the commencement of any work Tenant shall
(A) pay the increase in any insurance premiums caused by the work and obtain and
pay for worker's compensation insurance covering all persons employed in
connection with the work and with respect to whom death or bodily injury claims
could be asserted against Landlord, Tenant or the Demised Premises, and (B) in
the case of any change, alteration or reconstruction having an estimated cost of
$25,000.00 or more, obtain and pay for builder's risk insurance, which shall be
maintained or caused to be maintained by Tenant, at Tenant's sole cost and
expense, at all times when any work is in progress in connection with any such
change, alteration or reconstruction; all such insurance shall be issued by
insurers of recognized responsibility, which are well rated by a national rating
organization, with a rating sufficient to satisfy the rating requirements
provided for in any Existing Fee Mortgages (as hereinafter defined), licensed to
do business in the State of New York and approved by Landlord, which approval
shall not be unreasonably withheld and shall otherwise meet the requirements of
Article 5 hereof; all policies or certificates therefor issued by the respective
insurers, bearing notations evidencing the payment of premiums or accompanied by
other evidence satisfactory to Landlord of such payment, shall be delivered to
Landlord, or as Landlord may direct (subject to the provisions of any fee
mortgage);
(x) if the estimated cost of any such change or
alteration shall be in excess of $50,000.00, Tenant, before commencing any work,
at Tenant's sole cost and expense, shall furnish to Landlord a surety company
performance and payment bond, issued by a surety company acceptable to Landlord,
in an amount at least equal to the estimated cost of such change, alteration or
reconstruction, guaranteeing the completion thereof within a reasonable time,
free and clear of all liens, encumbrances, chattel mortgages, security
agreements, financing statements, conditional bills
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of sale and other charges, and in accordance with the plans and specifications
approved by Landlord, or in lieu of such performance and payment bond, other
security satisfactory to Landlord;
(xi) if, in the aggregate, the estimated cost of any
such changes or alterations shall be in excess of $50,000.00, Tenant shall pay
to Landlord the reasonable fees and expenses of any architect or engineer
selected by Landlord to review the plans and specifications and inspect the work
on behalf of Landlord;
(xii) the Demised Premises shall at all times be free
of liens, encumbrances, chattel mortgages, security agreements, financing
statements and conditional bills of sale, for labor and materials supplied to
the Demised Premises; and
(xiii) all work shall be done in accordance with the
provisions of any mortgage on the fee interest in the Demised Premises.
In no event shall Tenant be entitled to any abatement,
allowance, reduction or suspension of the Rent, Impositions, other additional
rent and other charges due hereunder by reason of such changes or alterations,
nor shall Tenant be released of or from any other obligations imposed upon
Tenant under this Lease.
Section 9.02 Title to all building(s) and all improvements now
or hereafter located on the Demised Premises, as changed or altered shall remain
vested in Landlord. Title to all fixtures, paneling, partitions, railings and
like installations, installed at the Demised Premises shall, immediately upon
installation, vest in Landlord, without payment therefor by Landlord.
ARTICLE 10
DISCHARGE OF LIENS
Section 10.01 Tenant will not create or permit to be created
or to remain, and will discharge, any lien, encumbrance or charge (levied on
account of any Imposition or any mechanic's or materialman's lien or any
conditional sale, title retention agreement, chattel mortgage, security
agreement, financing statement, or otherwise) which exists or might become a
lien, encumbrance or charge upon the Demised Premises or any part thereof or the
income therefrom and Tenant will not suffer any other matter or thing whereby
the estate, rights and interest of Landlord in the Demised Premises or any part
thereof, might be impaired; provided that any mechanic's or materialman's lien
may be discharged in accordance with Section 10.02. The provisions of this
Section 10.01 shall not apply to liens, encumbrances or charges created by
Landlord.
Section 10.02 If any mechanic's or materialman's lien shall at
any time be filed against the Demised Premises or any part thereof, Tenant,
within twenty (20) days after notice or knowledge of the filing thereof, will
cause the same to be discharged of record by payment, deposit, bond, order
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of a court of competent jurisdiction or otherwise. If Tenant shall fail to cause
such lien to be discharged within the period aforesaid, then, in addition to any
other right or remedy available to Landlord, Landlord may, but shall not be
obligated to (a) discharge the same either by paying the amount claimed to be
due or by procuring the discharge of such lien by deposit or by bonding
proceedings or (b) compel the prosecution of an action for the foreclosure of
such lien by the lienor and to pay the amount of the judgment in favor of the
lienor with interest, costs and allowances. Any amount so paid by Landlord and
all costs and expenses incurred by Landlord in connection therewith, together
with interest thereon from the date of Landlord's making of the payment or
incurring of the cost and expense, shall constitute additional rent payable by
Tenant under this Lease and shall be paid by Tenant to Landlord on demand.
Section 10.03 Except as the same is specifically and expressly
provided in this Lease, nothing in this Lease contained shall be deemed or
construed in any way as constituting the consent or request of Landlord, express
or implied by inference or otherwise, to any contractor, subcontractor, laborer
or materialman for the performance of any labor or the furnishing of any
materials for any improvement, alteration or repair of the Demised Premises or
any part thereof, nor as giving Tenant any right, power or authority to contract
for or permit the rendering of any services or the furnishing of any materials
that would give rise to the filing of any lien against the Demised Premises or
any part thereof.
ARTICLE 11
USE OF PREMISES
Section 11.01 Tenant shall use the Demised Premises for any
lawful purpose, including for the purpose of warehousing and distribution of
beds, bedding, mattresses, box springs, headboards, footboards, frames, mattress
pads, bunk beds, daybeds, electric beds, cots, high-risers, futons and other
related items and for offices related to such warehousing and distribution
activities, to the extent permitted by law and the certificate of occupancy
issued for the Demised Premises, and for no other purpose. Tenant shall not use
or occupy, nor permit or suffer, the Demised Premises or any part thereof to be
used or occupied for any unlawful use or purpose, nor for any business, use or
purpose deemed by Landlord to be disreputable or hazardous, nor in such manner
as to constitute a nuisance of any kind, nor for any purpose or in any way in
violation of any present or future governmental laws, ordinances, requirements,
orders, directions, rules or regulations. Tenant shall immediately upon the
discovery of any such unlawful, illegal, disreputable or hazardous use take all
necessary steps, legal and equitable, to compel the discontinuance of such use
and to oust and remove any subtenants, occupants, or other persons guilty of
such unlawful, illegal, disreputable or hazardous use. Tenant shall not have the
right to place any advertising or signs on the outside of the Demised Premises
without Landlord's prior written consent, which shall not be unreasonably
withheld. Tenant, at the expiration of this Lease, shall remove such advertising
or signs and shall repair any damage caused by such installation and removal.
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ARTICLE 12
NO WASTE
Section 12.01 Tenant shall not commit or suffer any waste to
the Demised Premises or any part thereof.
ARTICLE 13
ENTRY ON DEMISED PREMISES BY LANDLORD
Section 13.01 Landlord and its authorized representatives
shall have the right to enter the Demised Premises at all reasonable times (a)
for the purpose of inspecting the same and/or (b) upon five (5) days' notice to
Tenant (or, in case of any emergency, on such notice, or without notice, as may
be reasonable under the circumstances), for the purpose of making any repairs or
performing any work in or to the Demised Premises that may be necessary by
reason of Tenant's failure to make any such repairs or perform any such work,
unless during such five (5) day notice period Tenant shall have commenced and be
diligently prosecuting such repair and performance. Nothing herein contained
shall create or imply any duty on the part of Landlord to do any such work and
the performance thereof by Landlord shall not constitute a waiver of Tenant's
default in failing to perform the same or a release of Tenant from any of
Tenant's obligations under this Lease.
Section 13.02 During the progress of any work on the Demised
Premises pursuant to this Article 13, Landlord may keep and store therein all
materials, tools, supplies and equipment necessary for the performance of such
work. Landlord shall not be liable for any inconvenience, annoyance,
disturbance, loss of business or other damage to Tenant, any subtenant or other
occupant by reason of making such repairs or the performance of any such work,
or on account of bringing materials, tools, supplies and equipment into or
through the Demised Premises during the course thereof, and the obligations and
liabilities of Tenant under this Lease shall not be affected or released
thereby.
Section 13.03 Subject to its compliance with the provisions of
Article 32 hereof, Landlord shall have the right to enter the Demised Premises
at all times for the purpose of showing the same to prospective purchasers and
mortgagees, and, at any time within one (1) year prior to the expiration of this
Lease, for the purpose of showing the same to prospective tenants of all or any
part of the Demised Premises. Landlord may within six (6) months of the end of
the term of this Lease, post a "for rent" and/or a "for sale" sign at the
Demised Premises without molestation or hindrance by Tenant.
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ARTICLE 14
INDEMNIFICATION OF LANDLORD
Section 14.01 Tenant will indemnify and save Landlord harmless
against and from all liabilities, obligations, damages, penalties, claims,
costs, charges and expenses, including reasonable architects' and attorneys'
fees, which may be imposed upon or incurred by or asserted against Landlord by
reason of any of the following during the term of this Lease:
(a) any work or thing done in, on or about the Demised
Premises or any part thereof;
(b) any use, non-use, possession, occupation, condition,
operation, maintenance or management of the Demised Premises or any part thereof
or any street, alley, sidewalk, curb, vault, passageway or space adjacent
thereto;
(c) any negligence on the part of Tenant or any of its agents,
contractors, servants, employees, subtenants, licensees, franchisees or
invitees;
(d) any accident, injury or damage to any person or property
occurring in, on or about the Demised Premises or any part thereof or any
street, alley, sidewalk, curb, vault, passageway or space adjacent thereto;
(e) any failure by Tenant to perform or comply with any of the
covenants, agreements, terms or conditions contained in this Lease on its part
to be performed or complied with; or
(f) any tax attributable to the execution, delivery or
recording of this Lease or any modification hereof.
In case any action or proceeding is brought against Landlord by reason of any
such claim, Tenant upon written notice from Landlord will at Tenant's expense
resist or defend such action or proceeding by counsel approved by Landlord. The
comprehensive general liability coverage maintained by Tenant pursuant to
Section 5.02(a) shall specifically insure the contractual obligations of Tenant
as set forth in this Article 14.
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ARTICLE 15
DAMAGE OR DESTRUCTION
Section 15.01 In case of fire or other casualty to any
building or improvement located on the Demised Premises, Tenant shall give
immediate notice thereof to Landlord, and Tenant, at its sole cost and expense,
regardless of the extent of any such damage or destruction and whether or not
the insurance proceeds, if any, are sufficient for the purpose, shall restore,
repair, replace or rebuild the building as nearly as possible to its value and
condition immediately prior to such damage or destruction, in conformity with
the provisions of Article 9 hereof. Tenant shall promptly commence and
diligently prosecute such restoration, repair, replacement or rebuilding.
Section 15.02
(a) All insurance proceeds received and retained by Landlord
and/or the holder of any fee mortgage on Landlord's interest in the Demised
Premises on account of such damage or destruction, less the actual cost, fees
and expenses, if any, incurred in connection with adjustment of the loss, shall
be paid to and held by a trustee (the "Trustee") selected by Landlord or, if
required by any fee mortgage on Landlord's interest in the Demised Premises,
shall be held by the holder of the most senior of any such fee mortgage. The
Trustee shall be a bank or trust company doing business in the State of New
York. The Trustee shall hold any proceeds received by it under said policies, in
trust, to be disbursed in accordance with the terms of this Lease. Such proceeds
shall be applied to pay, or reimburse Tenant for the payment of, the cost of the
aforesaid restoration, repair, replacement or rebuilding, including the cost of
temporary repair or for the protection of property pending the completion of
permanent restoration, repair, replacement or rebuilding (all of which temporary
repairs, protection of property and permanent restoration, repair, replacement
or rebuilding are hereinafter collectively referred to as the "restoration"),
and shall be paid out from time to time as such restoration progresses upon the
written request of Tenant accompanied by the following:
(i) A certificate (the "Certificate") signed by
Tenant (or by an officer of Tenant, if Tenant is a corporation), dated not more
than fifteen (15) days prior to such request, setting forth the following:
(A) that the sum then requested either has been paid by Tenant, or is
justly due to contractors, subcontractors, materialmen, engineers, architects or
other persons who have rendered services or furnished materials for the
restoration therein specified, the names and addresses of such persons, a brief
description of such services and materials, and the several amounts so paid or
due to each of said persons in respect thereof;
(B) that no part of the requested expenditure was the basis of any
previous request or is the basis of any then pending request for the
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disbursement of insurance proceeds and that the sum then requested does not
exceed the value of the services and materials described in the Certificate;
(C) that, except for the amount stated in the Certificate to be due for
services or materials, there is no outstanding indebtedness known to the person
signing the Certificate, after due inquiry, which is then due for labor, wages,
materials, supplies or services in connection with the restoration; and
(D) that the cost, as estimated by the person signing the Certificate,
of the restoration required to be done subsequent to the date of the Certificate
in order to complete the restoration, and after payment of the sum requested in
the Certificate, does not exceed the remaining insurance proceeds, plus any
amount deposited by Tenant with the Trustee to defray such cost.
(ii) A title company or official search, or other
evidence satisfactory to Landlord, showing that there have not been filed with
respect to the Demised Premises any vendor's, contractor's, mechanic's,
laborer's or materialman's statutory or similar liens which have not been
discharged of record, except such as will be discharged upon payment of the sum
requested in the Certificate.
The Certificate shall also be signed by the architect and/or engineer in charge
of the restoration, who shall be licensed to practice in the State of New York,
selected by Tenant and approved by Landlord and the holder of any fee mortgage
affecting the Demised Premises, if required under such mortgage.
(b) Upon compliance with the provisions of subsection (a) of
this Section 15.02, the Trustee or, if applicable, the fee mortgagee shall, out
of such insurance proceeds, pay or cause to be paid to Tenant or the persons
named in the Certificate, the respective amounts stated therein to have been
paid by Tenant or to be due to the persons named in the Certificate, as the case
may be.
(c) If at any time, in Landlord's judgment, the insurance
proceeds, less the actual costs, fees and expenses, if any, incurred in
connection with the adjustment of the loss, shall be insufficient to pay the
entire cost of the restoration, Tenant shall forthwith deposit with the Trustee
or, if applicable, the fee mortgagee, an amount equal to the deficiency and the
Trustee or, if applicable, the fee mortgagee, shall not disburse any further
insurance proceeds until such deposit is made.
(d) Upon receipt by Landlord of satisfactory evidence that the
restoration has been completed and paid for in full and that there are no liens
on the Demised Premises as a result thereof, any balance of the insurance
proceeds held by the Trustee or, if applicable, by the fee mortgagee shall be
paid to Tenant.
Section 15.03 Except as otherwise specifically provided
herein, neither the destruction of or damage to the Demised Premises or any part
thereof by fire or any other casualty, nor the
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untenantability of all or part of the Demised Premises arising therefrom, shall
terminate or permit Tenant to surrender this Lease or shall relieve Tenant from
its liability to pay the full Rent, Impositions, other additional rent and other
charges payable under this Lease (except to the extent that Rent, Impositions
and other additional rent shall be paid by Landlord's application thereto of
rent insurance proceeds pursuant to Section 5.02(d)), or from any of its other
obligations under this Lease, and Tenant waives any rights now or hereafter
conferred upon it by any law or statute to cancel or surrender this Lease or to
quit or surrender the Demised Premises or any part thereof, or to any
suspension, diminution, abatement or reduction of rent, on account of any such
destruction or damage or untenantability arising therefrom.
Section 15.04 If, in the event of any damage or destruction to
the Demised Premises or any part thereof by fire or other casualty, the holder
of any fee mortgage on Landlord's interest in the Demised Premises shall refuse
to permit the insurance proceeds to be used for the restoration and shall elect
to apply such proceeds toward the reduction of the unpaid balance of said
mortgage, Landlord shall make available to Tenant, for the sole purpose of the
restoration which Tenant is obligated to make under this Lease, a sum equal to
the insurance proceeds so applied by the holder of such fee mortgage. Such sum
shall be paid by Landlord to the Trustee to be disbursed as provided in Section
15.02. Landlord shall be afforded a reasonable opportunity to procure such funds
by refinancing such mortgage or by placing an additional mortgage on the fee
interest in the Demised Premises. If Landlord fails to make such sum available,
Tenant, as its sole remedy, at its election, may supply the same and, in such
event, Tenant shall be entitled to deduct the amount due it from subsequent
installments of Rent due hereunder.
Section 15.05 Notwithstanding anything to the contrary
contained in this Article, (a) so long as any Event of Default shall exist
hereunder and remain uncured, Tenant shall not be entitled to receive any sum of
money which it otherwise would have been entitled to receive pursuant to this
Article were it not for such uncured Event of Default until all Events of
Default have been cured and all sums to which Landlord may be entitled under
this Lease shall have been actually received by Landlord; and (b) if this Lease
be terminated by reason of any such Event of Default prior to the payment to
Tenant of any sum of money which Tenant would otherwise have been entitled to
receive under this Article, then Tenant shall in no event be entitled to receive
any such sum.
ARTICLE 16
CONDEMNATION
Section 16.01 If at any time during the term of this Lease the
Demised Premises, or any part thereof, shall be taken by the exercise of the
right of condemnation or eminent domain or by agreement between Landlord, Tenant
and those authorized to exercise such right, Landlord shall be entitled to
collect from any condemnor the entire "award" (which term, as used in this
Article 16, shall include, without limitation, any amount paid pursuant to any
such agreement and any interest on such award), without deduction therefrom for
any estate hereby vested in or owned by Tenant. Tenant
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agrees to execute any and all further documents that may be required in order to
facilitate collection by Landlord of any and all such awards. Tenant, in
cooperation with Landlord, shall have the right to participate in any
condemnation proceedings or agreement as aforesaid for the purpose of protecting
Tenant's interest hereunder, provided however that, Tenant shall only be
entitled to share in any award as provided in this Article 16.
Section 16.02 If at any time during the term of this Lease
title to the whole or substantially all of the Demised Premises shall be taken
by the exercise of the right of condemnation or eminent domain or by agreement
between Landlord, Tenant and those authorized to exercise such right, this Lease
shall terminate and expire on the date of such taking and the Rent, Impositions
and other additional rent provided to be paid by Tenant shall be apportioned and
paid to the date of such taking. For the purposes of this Article,
"substantially all of the Demised Premises" shall mean 25% or more of the total
usable square foot area of all buildings on the Demised Premises.
Section 16.03 If the whole or substantially all of the Demised
Premises shall be so taken or acquired, the rights and interests of Tenant in
and to the Demised Premises shall terminate and Landlord shall be entitled to
receive the entire award without offset or reduction of any kind, provided,
however, that Tenant shall be entitled to make a separate claim for and receive
an award in respect of Tenant's personalty and trade fixtures, but only if such
award is made in addition to, and shall not result in a reduction of, the award
made to Landlord.
Section 16.04 If at any time during the term of this Lease
title to less than substantially all of the Demised Premises shall be taken as
aforesaid, Tenant, at its sole cost and expense, and regardless of whether the
award, if any, is sufficient for the purpose, shall repair, alter and restore
the remaining part of the Demised Premises to substantially its former
condition, to the extent feasible and in conformity with the provisions of
Article 9 hereof. Such repair, alteration and restoration shall be commenced
promptly and prosecuted with reasonable diligence. That portion of the award or
awards collected by Landlord pursuant to Section 16.01 of this Lease which
represents compensation for the taking of or damage to the building (as
distinguished from compensation for the taking of the land, the compensation for
which shall be paid directly and belong to Landlord) shall (subject to the
provisions of any fee mortgage of Landlord's interest in the Demised Premises)
be paid to and held by a trustee (the "Condemnation Trustee") selected by
Landlord, or if required by any fee mortgage, held by the holder of the most
senior fee mortgage. The Condemnation Trustee shall be a bank or trust company
doing business in the State of New York. The Condemnation Trustee or, if
applicable, the fee mortgagee, shall hold all such amounts, in trust, to be
disbursed and applied in substantially the same manner and subject to the same
conditions as provided in Section 15.02 with respect to insurance proceeds. If
at any time the net award or awards available for the repair, alteration and
restoration of the Demised Premises shall, in Landlord's judgment, be
insufficient to pay the entire cost of the repair, alteration and restoration
required hereunder, Tenant shall deposit with the Condemnation Trustee or, if
applicable, the fee mortgagee (before any further disbursement of the award or
awards may be made) an amount equal to the deficiency. If the holder of any fee
mortgage refuses to permit the application of the award or awards toward the
repair and restoration of the Demised Premises and elects to apply the award or
awards toward the reduction of the unpaid
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principal of its mortgage, Landlord shall make available to Tenant, for the sole
purpose of the repair, alteration and restoration which Tenant is obligated to
make under this Lease, an amount equal to the actual cost of such repair,
alteration and restoration, but in no event more than the amount of the award or
awards so applied by the holder of such fee mortgage. Such amount shall be paid
by Landlord to the Condemnation Trustee, to be disbursed in the same manner and
subject to the same conditions as provided in Section 15.02 with respect to
insurance proceeds. Landlord shall be afforded a reasonable opportunity to
procure such funds by refinancing such mortgage or by placing an additional
mortgage on the fee interest in the Demised Premises. If Landlord fails to make
such sum available, Tenant, at its election, as its sole remedy, may supply the
same and in such event shall be entitled to deduct the amount due it from
subsequent installments of Rent due hereunder.
Section 16.05
(a) Except as herein otherwise specifically provided, if title
to less than substantially all of the Demised Premises shall be taken, as
aforesaid, this Lease shall continue, but the Rent shall be reduced from the
date of such taking so that it thereafter bears the same ratio to the Rent
immediately prior to such taking as the square footage of the interior useable
floor area of the building(s) located on the Demised Premises after such taking
bears to the interior useable floor area of such building(s) immediately prior
to such taking.
(b) Tenant shall not be entitled to share in any award or
awards for the taking of any land, or for consequential damages or for the
taking of any appurtenances to the Demised Premises, vaults, areas or
projections outside of the boundaries of, or rights in, under or above the
streets adjoining, the Demised Premises, or the rights and benefits of light,
air or access to said streets, or for the taking of space or rights therein
below the surface of, or above, the Demised Premises.
(c) In no event shall the reduction in Rent pursuant to this
Section 16.05 exceed 10% of any net award or awards ultimately received by
Landlord (sums received by the holder of any fee mortgage and applied in
reduction of the principal amount thereof being deemed for the purposes of this
sentence received by Landlord) after payment of any sum applied toward repair
and restoration as provided in Section 16.04.
Section 16.06 Any Rent becoming due and payable hereunder
between the date of any taking covered by the provisions of Section 16.05 and
the date of determination of the amount of the Rent reduction, if any, to be
made in respect thereof shall, unless the parties are able to agree on a
tentative, provisional reduction (which they shall attempt to do in good faith),
continue to be paid at the rate theretofore payable under this Lease. Within ten
(10) days after such determination, any overpayment or underpayment of Rent
shall be paid to the party entitled thereto with interest at the rate of 6% per
annum. If any overpayment due to Tenant is not made, Tenant, at its election,
may deduct the amount due it from any subsequent installments of Rent due
hereunder.
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Section 16.07
(a) If the temporary use of the whole or any part of the
Demised Premises shall be taken by any lawful exercise of the right of
condemnation or eminent domain, or by agreement among Landlord, Tenant and those
authorized to exercise such right, Tenant shall give prompt notice thereof to
Landlord, the term of this Lease shall not be reduced or affected in any way,
Tenant shall continue to pay in full the Rent, Impositions, other additional
rent and other charges herein reserved, without reduction or abatement, and
Tenant shall be entitled to receive for itself the entire award or payment for
the unexpired portion of the term of this Lease. In the event that the award
shall be for a period extending beyond the term of this Lease, Landlord shall be
entitled to receive the portion of the award attributable to the period after
such expiration.
(b) Tenant shall also pay all fees, costs and expenses
(including attorneys' fees) of Landlord in connection with any taking provided
for in subsection (a) of this Section 16.07, except that if the taking is for a
period extending beyond the term of the Lease, such fees, costs and expenses
shall be appropriately apportioned.
Section 16.08 In the case of any taking covered by the
provisions of this Article, Landlord shall be entitled to reimbursement from any
award or awards of all reasonable costs, fees and expenses incurred in the
determination and collection of any such awards.
Section 16.09 In the event of any dispute between Landlord and
Tenant as to whether or not substantially all of the Demised Premises has been
taken, as herein defined, such matter shall be determined by arbitration as
provided in Article 24.
Section 16.10 Notwithstanding anything to the contrary
contained in this Article, (a) so long as any Event of Default shall exist
hereunder and remain uncured, Tenant shall not be entitled to receive any sum of
money which it otherwise would have been entitled to receive pursuant to this
Article were it not for such uncured Event of Default until all Events of
Default have been cured and all sums to which Landlord may be entitled under
this Lease shall have been actually received by Landlord; and (b) if this Lease
be terminated by reason of any such Event of Default prior to the payment to
Tenant of any sum of money which Tenant would otherwise have been entitled to
receive under this Article, then Tenant shall in no event be entitled to receive
any such sum.
ARTICLE 17
SUBORDINATION AND COMPLIANCE WITH MORTGAGES
Section 17.01 This Lease and all rights of Tenant hereunder
shall be subject and subordinate to the lien of any and all mortgages which may
now or hereafter affect the Demised Premises, or any part thereof, and any
consolidation, modification, renewal, replacement or extension of any such
mortgages, provided that (a) in the case of the existing fee mortgages, the
existing fee mortgagees enter into a Subordination, Non-Disturbance and
Attornment agreement in the form of
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Exhibit B annexed hereto and (b) in the case of any future fee mortgage,
Landlord will use its best efforts to obtain the fee mortgagee's agreement, in
recordable form, that, so long as there shall be no outstanding default in any
of the terms, conditions, covenants, or agreements of this Lease on the part of
Tenant to be performed, the leasehold estate of Tenant created hereby and
Tenant's peaceable and quiet possession of the Demised Premises shall remain
undisturbed by any foreclosure of such mortgage. The provisions of Section 17.01
shall be self-operative, but Tenant shall upon demand at any time or times
execute, acknowledge and deliver to Landlord, without expense to Landlord, any
and all instruments that may be necessary or proper to subordinate this Lease
and all rights hereunder to the lien of any such mortgage or mortgages and each
renewal, modification, consolidation, replacement and extension thereof.
Section 17.02 Tenant covenants and agrees that it will duly
and punctually observe, perform and comply with all of the terms, covenants and
conditions of all fee mortgages affecting the Demised Premises (excluding,
however, the payment of principal and interest thereunder) which do not
materially increase Tenant's obligations under the other provisions of this
Lease, and Tenant further covenants that it will not, directly or indirectly, do
any act or suffer or permit any condition or thing to occur which would or might
constitute a default under any such fee mortgage.
Section 17.03 (a) The three existing fee mortgages are
described on Exhibit C annexed hereto and shall be referred to herein
collectively as the "Existing Fee Mortgages" and collectively, as to items 1 and
2 on Exhibit C, as the "Fleet Mortgage" and individually, as to item 3 on
Exhibit C, as the "SBA Mortgage". The notes which are secured by the mortgages
constituting the Fleet Mortgage shall be referred to herein collectively, as the
"Fleet Notes" and the note which is secured by the SBA Mortgage shall be
referred to herein as the "SBA Note". Tenant agrees that upon receipt of a
notice from the holder of the Fleet Mortgage (the "Fleet Mortgagee") that
Landlord has defaulted in making a monthly payment due with respect to the Fleet
Notes or any sum which is due to the Fleet Mortgagee under the Fleet Mortgage
and that such default has continued beyond the applicable notice and cure period
and remains uncured and directing Tenant to pay a specified portion of each
monthly installment of the Rent due hereunder to the Fleet Mortgagee equal to
the amount of such defaults (the "Designated Fleet Payment"), then Tenant, on
the first day of the first month following the date of receipt of such notice
until further notice from the Fleet Mortgagee, shall make the Designated Fleet
Payment to the Fleet Mortgagee, at the address set forth in the notice, in the
same manner and on the same due dates that it is required to pay monthly
installments of Rent due hereunder. Simultaneously with making any Designated
Fleet Payment to the Fleet Mortgagee, Tenant shall send a copy of the notice of
such payment and such payment to Landlord. The monthly Designated Fleet Payment
shall be equal to the lesser of (i) the aggregate amount of the monthly
installments of principal and interest then due under all of the Fleet Notes and
the sum which is due to the Fleet Mortgagee under the Fleet Mortgage and (ii)
the then monthly installment of Rent due hereunder. If at any time after Tenant
commences making the Designated Fleet Payments to the Fleet Mortgagee, the
aggregate of the monthly installments of principal and interest changes under
the Fleet Notes, the Fleet Mortgagee shall immediately notify Tenant of the
changed amount of the Designated Fleet Payment and upon receipt of such notice,
and until further notice from the Fleet Mortgagee, Tenant shall pay the new
Designated Fleet Payment to the Fleet Mortgagee. For purposes of this
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Lease, and as between Landlord and Tenant, all Designated Fleet Payments made by
Tenant to the Fleet Mortgagee shall be deemed on account of Rent and if Tenant
fails to pay any monthly Designated Fleet Payment in a timely manner, then
Landlord shall have the same remedies against Tenant that Landlord would
otherwise have had if such payments were required to be made directly to
Landlord. Without limiting the generality of the previous sentence, the
provisions of Sections 2.03 and 2.04 hereof shall be fully applicable to the
Designated Fleet Payment (with any amounts payable under such Sections being
payable directly to Landlord). Tenant acknowledges that the Fleet Mortgagee is a
third party beneficiary under this Section 17.03(a) and shall have a direct
cause of action against Tenant based on Tenant's failure to pay to the Fleet
Mortgagee any Designated Fleet Payment required hereunder. By exercising any
rights to the Designated Fleet Payments pursuant to this Section 17.03(a), the
Fleet Mortgagee, for itself and its successors and assigns, agrees to be bound
by the provisions of this Section 17.03(a). As between Landlord and the Fleet
Mortgagee, all Designated Fleet Payments made by Tenant shall be applied in
accordance with, and governed by, that certain letter agreement dated
_______________ between Landlord and the Fleet Mortgagee, a copy of which is
annexed hereto at Exhibit C.
(b) Tenant agrees that upon receipt of a notice from the
holder of the SBA Mortgage (the "SBA Mortgagee") that Landlord has defaulted in
making a monthly payment due with respect to the SBA Note or SBA Mortgage, and
that such default has continued beyond the applicable notice and cure period and
remains uncured and directing Tenant to pay a specified portion of each monthly
installment of the Rent due hereunder to the SBA Mortgagee (the "Designated SBA
Payment"), then Tenant, on the first day of the first month following the date
of receipt of such notice until further notice from the SBA Mortgagee, shall
make the Designated SBA Payment to the SBA Mortgagee, at the address set forth
in the notice, in the same manner and on the same due dates that it is required
to pay monthly installments of Rent due hereunder. Simultaneously with making
any Designated SBA Payment to the SBA Mortgagee, Tenant shall send a copy of the
notice of such payment and such payment to Landlord. The monthly Designated SBA
Payment shall be equal to the lesser of (i) the amount of the monthly
installment of principal and interest due under the SBA Note and (ii) the then
monthly installment of Rent due hereunder minus the then monthly Designated
Fleet Payment due hereunder, if any. For purposes of this Lease, and as between
Landlord and Tenant, all SBA Designated Payments made by Tenant to the SBA
Mortgagee shall be deemed on account of Rent and if Tenant fails to pay any
monthly Designated SBA Payment in a timely manner, then Landlord shall have the
same remedies against Tenant that Landlord would otherwise have had if such
payments were required to be made directly to Landlord. Without limiting the
generality of the previous sentence, the provisions of Sections 2.03 and 2.04
hereof shall be fully applicable to the Designated SBA Payment (with any amounts
payable under such Sections being payable directly to Landlord). Tenant
acknowledges that the SBA Mortgagee is a third party beneficiary under this
Section 17.03(b) and shall have a direct cause of action against Tenant based on
Tenant's failure to pay to the SBA Mortgagee any Designated SBA Payment required
hereunder. By exercising any rights to the Designated SBA Payment pursuant to
this Section 17.03(b), the SBA Mortgagee, for itself and its successors and
assigns, agrees to be bound by the provisions of this Section 17.03(b). As
between Landlord and the SBA Mortgagee, all Designated SBA Payments made by
Tenant shall
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be applied in accordance with, and governed by, that certain letter agreement
dated ___________ between Landlord and the SBA Mortgagee, a copy of which is
annexed hereto at Exhibit C.
(c) The foregoing provisions of this Section 17.03 shall not
impair or affect in any manner the obligation of Tenant to pay directly to
Landlord each monthly installment of Rent due hereunder to the extent that each
monthly installment exceeds the aggregate of the Designated Fleet Payment, if
any, and the Designated SBA Payment, if any, for the month in question.
Section 17.04 Tenant hereby agrees not to look to the Fleet
Mortgagee, as mortgagee, mortgagee in possession, or successor in title to such
interest, for accountability for any security deposit required by Landlord
hereunder unless such security deposit has actually been received by the holder
of the Fleet Mortgage as security for the Tenant's performance under this Lease.
ARTICLE 18
ASSIGNMENTS, SUBLEASES AND TRANSFERS OF TENANT'S INTEREST
Section 18.01
(a) Tenant, for itself, its successors and assigns, expressly
covenants that it shall not assign, mortgage or encumber this Lease, voluntarily
or involuntarily, by operation of law or otherwise, nor sublet or suffer or
permit the Demised Premises or any part thereof to be used or occupied by
others, without the prior written consent of Landlord in each instance.
Landlord's consent to a sublease of the entire Demised Premises or an assignment
of this Lease shall not be unreasonably withheld.
(b) If the issuance, sale, assignment, transfer or other
disposition of any of the issued and outstanding capital stock of Tenant (or of
any successor or assignee or subtenant of Tenant which is a corporation), or of
the interest of any existing or new general partner in a partnership owning the
leasehold estate created hereby or the subleasehold estate created by any
sublease of the Demised Premises, or of the interest of any existing or new
member of a limited liability company, joint venture, syndicate or other group
which may collectively own such leasehold or subleasehold estate, shall result
in changing the control of Tenant or such other corporation or such partnership,
limited liability company, joint venture, syndicate or other group, such sale,
assignment, transfer or other disposition shall be deemed an assignment of this
Lease or of such sublease and shall be subject to all of the provisions of this
Lease with respect to assignments. For the purposes of this Article 18,
"control" of any corporation shall be deemed to have changed if any person or
group of persons purchases or otherwise succeeds (through one transaction or a
series of related transactions) to more than 50% of the voting power for the
election of the board of directors of such corporation and "control" of a
partnership, limited liability company, joint venture, syndicate or other group
shall be deemed to have changed if any person or group of persons purchases or
otherwise succeeds (through one transaction or a series of related transactions)
to more than 50%
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of the general partners' or other active interests in such limited liability
company, joint venture, syndicate or other group.
(c) If this Lease is assigned, or if Tenant sublets the
Demised Premises or permits the use or occupancy thereof by another, whether or
not in violation of this Lease, Landlord may accept from any assignee, subtenant
or anyone who claims a right to the interest of Tenant under this Lease, or who
occupies the Demised Premises or any portion thereof, the payment of rent and/or
the performance of any of the other obligations of Tenant under this Lease, but
such acceptance shall not be deemed to be a waiver by Landlord of the breach of
this Lease by Tenant, nor a recognition by Landlord that any such assignee,
subtenant, claimant or occupant has succeeded to the rights of Tenant hereunder,
nor a release by Landlord of Tenant from further performance by Tenant of the
covenants on Tenant's part to be performed under this Lease; provided, however,
that the net amount of rent collected from any such assignee, other subtenant,
claimant or occupant shall be applied by Landlord to the Rent, Impositions and
other additional rent to be paid under this Lease. If this Lease be assigned or
transferred in any manner whatsoever, or if there shall be any subletting of the
Demised Premises, such assignment, transfer or subletting as the case may be,
shall be upon and subject to all of the covenants, provisions and conditions
contained in this Lease and, notwithstanding any consent by Landlord to any such
assignment, transfer or any subletting by Tenant, Tenant shall continue to be
and remain fully liable for the performance of all of the covenants, agreements,
terms, and provisions contained in this Lease and for all acts and omissions of
any assignee, subtenant or transferee or anyone claiming under or through any
assignee, subtenant or transferee which shall be in violation of any of the
obligations of this Lease, and any such violation shall be deemed to be a
violation by Tenant. Any consent by Landlord to any such assignment, transfer,
subletting or other matter or thing contained in this Article shall not in any
way be construed to relieve Tenant from obtaining the prior consent of Landlord
to any other or further such assignment, transfer, subletting, matter or thing.
Section 18.02
(a) If Tenant's trustee or Tenant, as debtor-in-possession,
assumes this Lease and proposes to assign the same pursuant to the provisions of
the bankruptcy laws of the United States of America as set forth in 11 U.S.C.
Sec. 101, et. seq., and such other statutes, codes and regulations relating
thereto (the "Bankruptcy Code") to any person or entity who shall have made a
bona fide offer to accept an assignment of this Lease on terms acceptable to
Tenant's trustee or Tenant, as debtor-in-possession, then notice of such
proposed assignment shall be given to Landlord by Tenant's trustee or Tenant, as
debtor-in-possession, as applicable, no later than twenty (20) days after
receipt by Tenant's trustee or Tenant, as debtor-in-possession, as applicable,
of such offer, but in any event no later than ten (10) days prior to the date
that Tenant's trustee or Tenant, as debtor-in-possession, as applicable, shall
make application to a court of competent jurisdiction for authority and approval
to enter into such assignment and assumption. Such notice shall set forth (i)
the name and address of such person, (ii) all of the terms and conditions of
such offer, and (iii) adequate assurance of future performance by such person
under this Lease, including, without limitation, the assurance referred to in
Section 365(b)(3) of the Bankruptcy Code. Landlord shall have the prior right
and option, to be exercised by notice to Tenant given at any time prior to the
effective date of such proposed
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assignment, to accept an assignment of this Lease upon the same terms and
conditions and for the same consideration, if any, as the bona fide offer made
by such person, less any brokerage commissions which would otherwise be payable
by Tenant out of the consideration to be paid by such person in connection with
the assignment of this Lease.
(b) The term "adequate assurance of future performance" as
used in this lease shall mean that any proposed assignee shall, among other
things, (i) deposit with Landlord on the assumption of this Lease the sum of 50%
of the then annual Rent as security for the faithful performance and observance
by such assignee of the terms and obligations of this Lease, which sum shall be
held in accordance with the provisions of Article 30 hereof, (ii) furnish
Landlord with financial statements of such assignee for the prior three (3)
fiscal years, as finally determined after an audit and certified as correct by a
certified public accountant, which financial statements shall show a net worth
of at least six (6) times the then annual Rent for each of such three (3) years,
(iii) grant to Landlord a security interest in such property of the proposed
assignee as Landlord shall deem necessary to secure such assignee's future
performance under this Lease, and (iv) provide such other information or take
such action as Landlord, in its reasonable judgment shall determine is necessary
to provide adequate assurance of the performance by such assignee of its
obligations under this lease.
ARTICLE 19
CONDITIONAL LIMITATIONS; DEFAULT PROVISIONS
Section 19.01 If any one or more of the following events
(herein sometimes called "Events of Default" or individually called an "Event of
Default") shall happen:
(a) default shall be made in the due and punctual payment of
any Rent, Impositions or other additional rent payable under this Lease when and
as the same shall become due and payable in accordance with the terms of this
Lease and such default shall continue for a period of ten (10) days after notice
thereof from Landlord to Tenant; or
(b) default shall be made by Tenant in the performance of or
compliance with any of the covenants, agreements, terms or provisions contained
in this Lease, other than those referred to in the foregoing subdivision (a),
and such default shall continue for a period of ten (10) days after notice
thereof from Landlord to Tenant, except that in connection with a default not
susceptible of being cured with due diligence within ten (10) days, then
provided Tenant commences promptly and proceeds diligently to cure the same, the
time within which Tenant shall be permitted to cure the same shall be extended
for such period of time as may be necessary to cure the same with all due
diligence but in no event shall such period of time be extended for more than
ninety (90) days, or for a period which would either subject Landlord to any
civil or criminal liability or create a default under any fee mortgage affecting
the Demised Premises; provided that for purposes of this subdivision (b), no
default under any such mortgage shall be deemed to exist until five (5) days
prior to the expiration of the period, if any, allowed by the holder of such
mortgage for the curing thereof; or
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(c) the making by Tenant or any guarantor of this Lease
(herein referred to as "Guarantor") of an assignment for the benefit of
creditors, or admitting in writing its inability to pay its debts as they
mature, or if Tenant or any Guarantor shall file a voluntary petition in
bankruptcy or insolvency, or shall be adjudicated a bankrupt or insolvent, or
shall file any petition or answer seeking any reorganization, arrangement,
composition, readjustment, liquidation, dissolution or similar relief under the
present or any future federal bankruptcy act or any other present or future
applicable federal, state or other statute or law, or shall seek or consent to
or acquiesce in the appointment of any trustee, receiver or liquidator of Tenant
or any Guarantor or of all or any part of Tenant's or any Guarantor's property;
or
(d) if, within thirty (30) days after the commencement of any
proceeding against Tenant or any Guarantor, whether by the filing of a petition
or otherwise, seeking any reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under the present or
any future federal bankruptcy act or any other present or future applicable
federal, state or other statute or law, such proceeding shall not have been
dismissed, or if, within thirty (30) days after the appointment of any trustee,
receiver or liquidator of Tenant or any Guarantor, or of all or any part of
Tenant's or any Guarantor's property, without the consent or acquiescence of
Tenant or said Guarantor, as applicable, such appointment shall not have been
vacated or otherwise discharged, or if any execution or attachment shall be
issued against Tenant or any of Tenant's property pursuant to which the Demised
Premises shall be taken or occupied or attempted to be taken or occupied; or
(e) if Tenant shall vacate or abandon the Demised Premises,
or otherwise cease to occupy the same except in a manner permitted under Article
18; or
(f) if this Lease or the estate of Tenant hereunder shall be
sublet, assigned or otherwise transferred to or shall devolve upon any other
person or entity, whether by operation of law or otherwise, except in a manner
permitted under Article 18;
then and in any such event Landlord, at any time thereafter during the
continuance of such Event of Default, may give notice to Tenant of the
termination of this Lease in the manner required by Article 22 (regardless of
whether Landlord prior to the giving of such notice shall have accepted rent or
any other payment, however designated, for the use and occupancy of the Demised
Premises from or on behalf of Tenant or from any other person) specifying the
Event of Default or Events of Default giving rise to the termination and stating
that this Lease and the term hereby demised shall expire and terminate on the
date specified in such notice, which date shall be at least five (5) days after
the giving of such notice. In the event such notice is given, this Lease and the
term hereby demised and all rights of Tenant under this Lease shall expire and
terminate upon the date specified in such notice with the same effect as if the
date specified in such notice were the date set forth in this Lease for the
expiration of the term hereby demised, but Tenant shall remain liable as
provided in Section 19.03.
Section 19.02 Upon any such expiration or termination of this
Lease, Tenant shall quit and peacefully surrender the Demised Premises to
Landlord, and Landlord, upon or at any time after
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any such expiration or termination, may, without further notice, enter upon and
reenter the Demised Premises and possess and repossess itself thereof, by force,
summary proceedings, ejectment or otherwise, and may dispossess Tenant and
remove Tenant and all other persons and property from the Demised Premises and
may have, hold and enjoy the Demised Premises and the right to receive all
rental income of and from the same.
Section 19.03 No such expiration or termination of this Lease,
including the reentry of Landlord, shall relieve Tenant of its liability and
obligations to pay the Rent, Impositions, insurance premiums and other
additional rent theretofore accrued or thereafter accruing under this Lease, as
more particularly set forth in Section 19.11, and such liability and obligations
shall survive any such expiration or termination.
Section 19.04 Tenant hereby expressly waives, so far as
permitted by law, the service of any notice of intention to reenter provided for
in any statute, and Tenant, for and on behalf of itself and all persons claiming
through or under Tenant, also waives any and all right of redemption or reentry
or repossession or to restore the operation of this Lease in case Tenant shall
be dispossessed by a judgment or by warrant of any court or judge or in case of
reentry or repossession by Landlord or in case of any expiration or termination
of this Lease. The terms "enter," "reenter," "entry," or "reentry," as used in
this Lease, are not restricted to their technical legal meaning.
Section 19.05 No failure by Landlord to insist upon the strict
performance of any covenant, agreement, term or condition of this Lease or to
exercise any right or remedy consequent upon a breach thereof shall constitute a
waiver of any such breach or of such covenant, agreement, term or condition. No
covenant, agreement, term or condition of this Lease to be performed or complied
with by Tenant, and no breach thereof, shall be waived, altered or modified
except by a written instrument executed by Landlord. No waiver of any breach
shall affect or alter this Lease, but each and every covenant, agreement, term
and condition of this Lease shall continue in full force and effect with respect
to any other then existing or subsequent breach thereof.
Section 19.06 In the event of any breach or threatened breach
by Tenant of any of the covenants, agreements, terms or conditions contained in
this Lease, Landlord shall be entitled to enjoin such breach or threatened
breach and shall have the right to invoke any right and remedy allowed at law or
in equity or by statute or otherwise as though reentry, summary proceedings and
other remedies were not provided for in this Lease.
Section 19.07 Tenant shall pay upon demand all costs, charges
and expenses, including attorneys' fees and disbursements of counsel and others
retained by Landlord, incurred by Landlord in enforcing Tenant's obligations
hereunder or incurred by Landlord in any litigation in which Tenant causes
Landlord to become involved or concerned.
Section 19.08 The rights and remedies given to Landlord in
this Lease are distinct, separate and cumulative, and no one of them, whether or
not exercised by Landlord, shall be deemed to be in exclusion of any of the
others herein or by law or in equity provided and the exercise by
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Landlord of any one or more of the rights or remedies provided for in this Lease
shall not preclude the simultaneous or later exercise by Landlord of any or all
other rights or remedies. In particular, nothing in Section 19.01 shall be
deemed to require Landlord to give any notice provided therein prior to the
commencement of a summary proceeding for nonpayment of Rent, Impositions or
other additional rent, it being intended that the notices therein provided are
for the purpose of creating a conditional limitation hereunder pursuant to which
this Lease shall terminate and Tenant shall become a holdover tenant.
Section 19.09 In all cases hereunder, and in any suit, action
or proceeding of any kind between the parties, it shall be presumptive evidence
of the fact of a charge being due, if Landlord shall produce a bill, notice or
certificate of any public official entitled to give the same to the effect that
such charge appears of record on the books in his office and has not been paid.
Section 19.10 No receipt of monies by Landlord from Tenant,
after the cancellation or termination hereof in any lawful manner, shall
reinstate, continue or extend the term, or affect any notice theretofore given
to Tenant or operate as a waiver of the right of Landlord to enforce the payment
of Rent, Impositions and other additional rent then due or thereafter falling
due, or operate as a waiver of the right of Landlord to recover possession of
the Demised Premises by proper suit, action, proceeding or other remedy; it
being agreed that, after the service of notice to cancel or terminate as herein
provided and the expiration of the time therein specified, after the
commencement of any suit, action, proceeding or other remedy or after a final
order or judgment for possession of the Demised Premises, Landlord may demand,
receive and collect any monies due, or thereafter falling due, without in any
manner affecting such notice, suit, action, proceeding, order or judgment; and
any and all such monies so collected shall be deemed to be payments on account
of the use and occupation of the Demised Premises, or at the election of
Landlord, on account of Tenant's liability hereunder.
Section 19.11 In the event of the expiration or termination of
this Lease as provided in this Article 19 or by operation of law or issuance of
a dispossessory warrant or otherwise, Tenant shall remain liable under this
Lease for the payment of the Rent, Impositions and all other additional rent and
the observance and performance of all other covenants on its part to be
performed. Landlord shall have the right to alter, change or remodel the
improvements on the Demised Premises and to divide and subdivide the same in any
manner Landlord may determine and to lease or let the same, or portions thereof,
or not to lease or let the same, for such periods of time and at such rentals
and for such use and upon such covenants and conditions as Landlord may elect,
applying the net rentals or avails of such letting, if any, first to the payment
of Landlord's expenses in dispossessing Tenant and the costs and expenses of
making such improvements in the Demised Premises as may be necessary in order to
enable Landlord to relet the same, and then to the payment of any brokerage
commissions or other expenses of Landlord in connection with such reletting. The
balance, if any, after application as provided in the preceding sentence, shall
be applied by Landlord at least once a month, on account of the amounts due and
payable by Tenant hereunder, with the right reserved to Landlord to bring such
action(s) or proceeding(s) for the recovery of any deficits remaining unpaid
without being obliged to await the end of the term of this Lease for a final
determination of Tenant's
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account, and the commencement or maintenance of any one or more actions shall
not bar Landlord from bringing other or subsequent actions for further accruals
pursuant to the provisions of this Section. Any balance remaining, however,
after full payment and liquidation of Landlord's accounts for the remainder of
the term of this Lease as aforesaid, shall be paid to Tenant with the right
reserved to Landlord at any time, if it has not theretofore terminated this
Lease, to give notice to Tenant of Landlord's election to cancel this Lease and
discharge all the obligations thereunder of either party to the other, and the
giving of such notice and the simultaneous payment by Landlord to Tenant of any
credit balance in Tenant's favor that may at such time be owing, shall
constitute a final and effective cancellation of this Lease and a discharge of
the obligations thereof on the part of either party to the other. Tenant agrees
to pay, in addition to the rent and other sums required to be paid hereunder,
Landlord's attorneys' fees and disbursements in any successful suit or action
instituted by Landlord to enforce the provisions of this Lease or the collection
of the amounts due Landlord hereunder. Should any rent collected by Landlord be
insufficient to fully pay to Landlord a sum equal to all Rent, Impositions and
other additional rent reserved herein and other charges payable hereunder for
the remainder of the term herein originally demised, the balance or deficiency
shall be paid by Tenant on the rent days herein specified, that is, upon each of
such rent days Tenant shall pay to Landlord the amount of the deficiency then
existing; and Tenant shall be and remain liable for any such deficiency, and the
right of Landlord to recover from Tenant the amount thereof, or a sum equal to
all such Rent, Impositions and other additional rent and other charges payable
hereunder, if there shall be no reletting, shall survive the issuance of any
dispossessory warrant or other cancellation or termination of this Lease, and
Landlord shall be entitled to retain any overage; and Tenant hereby expressly
waives any defense to the payment of such balance or deficiency that might be
predicated upon the issuance of such dispossessory warrant or other cancellation
or termination of this Lease.
Section 19.12 In any of the circumstances mentioned in Section
19.11 in which Landlord shall have the right to hold Tenant liable upon the
several rent days as therein provided, Landlord shall have the election, in
place and instead of holding Tenant so liable, to forthwith recover against
Tenant as damages for loss of the bargain and not as a penalty, in addition to
any other damages becoming due, an aggregate sum which, at the time of the
termination of this Lease or of the recovery of possession of the Demised
Premises by Landlord, as the case may be, represents the then present worth of
the excess (computed by discounting such excess at the simple rate of six (6%)
percent per annum), if any, of the aggregate of the Rent, Impositions and other
additional rent and all other charges payable by Tenant hereunder that would
have accrued for the balance of the term over the aggregate rental value of the
Demised Premises for the balance of such term.
Section 19.13 Suit or suits for the recovery of the deficiency
or damages referred to in Sections 19.11 and 19.12, or for any installment or
installments of Rent, Impositions and other additional rent hereunder, or for a
sum equal to any such installment or installments may be brought by Landlord,
from time to time at Landlord's election, and nothing in this Lease contained
shall be deemed to require Landlord to await the date on which the term of this
Lease would have expired by limitation had there been no such default by Tenant
or no such cancellation or termination.
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Section 19.14 If this Lease shall be cancelled and terminated
as provided in Section 19.01, or if there shall be any breach of this Lease
referred to in subsections (c) or (d) of Section 19.01, Tenant covenants and
agrees, any other covenant in this Lease to the contrary notwithstanding, that:
(a) the Demised Premises shall be then in the same condition
as that in which Tenant has agreed to surrender them to Landlord at the
expiration of the term hereof;
(b) Tenant, on or before the occurrence of any such event,
shall perform any covenant contained in this Lease for the making of any
improvement, alteration or betterment to the Demised Premises, or for restoring
any part thereof; and
(c) if Tenant breaches any covenant stated in this Section
19.14, Tenant shall pay as and for liquidated damages for such breach the then
cost of performing such covenant, without notice or action by Landlord to
recover such damages.
Each and every covenant contained in this Section 19.14 shall be deemed separate
and independent and not dependent upon other provisions of this Lease, and the
performance of any such covenant shall not be considered to be rent or other
payment for the use of the Demised Premises. The damages for failure to perform
the same shall be deemed in addition to and separate and independent of the
damages accruing by reason of the breach of any other covenant contained in this
Lease.
Section 19.15 Nothing in this Article 19 contained shall limit
or prejudice the right of Landlord to prove and obtain as liquidated damages in
any bankruptcy, insolvency, receivership, reorganization or dissolution
proceeding an amount equal to the maximum allowed by any statute or rule of law
governing such proceeding and in effect at the time when such damages are to be
proved, whether or not such amount be greater, equal to or less than the amount
of damages referred to in any of the preceding sections; or the right of
Landlord to take such action as may be otherwise permissible hereunder in the
case of such default.
ARTICLE 20
STATEMENTS
Section 20.01 At any time and from time to time, Landlord,
upon at least ten (10) days' prior request by Tenant, and Tenant, upon at least
ten (10) days' prior request by Landlord, will deliver, without charge, to the
party making such request, addressed to that party or, in the case of a request
by Landlord, to any proposed mortgagee or purchaser from Landlord (as Landlord
may designate), a duly executed and acknowledged statement certifying that this
Lease is unmodified and in full force and effect (or, if there have been
modifications, that the same is in full force and effect as modified, and
stating the modifications), the dates to which the Rent, Impositions, other
additional rent and other charges have been paid and whether or not, to the best
knowledge of the party
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executing such certificate, the party requesting such statement is in default in
the performance of any covenant, agreement or condition contained in this Lease
and whether any offsets, counterclaims or defenses exist in respect of the
performance by the party providing such statement of any of its obligations
under this Lease, and, if so, specifying each such default, offset, counterclaim
or defense of which the executing party has knowledge.
ARTICLE 21
INVALIDITY OF PARTICULAR PROVISIONS
Section 21.01 If any term or provision of this Lease or the
application thereof to any person or circumstance shall, to any extent, be
invalid or unenforceable, the remainder of this Lease, or the application of
such term or provision to persons or circumstances other than those as to which
it is held invalid or unenforceable, shall not be affected thereby, and each
other term and provision of this Lease shall be valid and be enforced to the
fullest extent permitted by law.
ARTICLE 22
NOTICES
Section 22.01 All notices, demands, approvals, requests,
statements and directives (hereinafter collectively called "notices"), permitted
or required under this Lease, shall be in writing. All such notices, shall be
deemed to have been properly given if hand delivered or if sent by United States
certified or registered mail, return receipt requested, postage prepaid,
addressed as hereinafter provided. All such notices to Landlord shall be
addressed to Landlord at the address first above written, Attention:
_____________________, with a copy to Parker Chapin Flattau & Klimpl, LLP, 1211
Avenue of the Americas, New York, New York 10036, Attention: Gary J. Simon,
Esq., or at such other address as Landlord may from time to time designate by
written notice to Tenant. All such notices to Tenant shall be addressed to
Tenant at the Demised Premises or its address first above written or at such
other address as Tenant may from time to time designate by written notice to
Landlord, with a copy to ____________________, Attention: _______________.
Section 22.02 Notices which are hand delivered to Landlord or
Tenant shall be deemed sufficiently served or given for all purposes hereunder
upon delivery. Notices which are served by registered or certified mail upon
Landlord and Tenant in the manner aforesaid, shall be deemed sufficiently served
or given for all purposes hereunder on the third business day following the date
such notice shall be mailed by United States certified or registered mail in any
post office or branch post office regularly maintained by the United States
government within the continental United States.
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Section 22.03 All payments required to be made hereunder by
either party to the other shall be made to the address designated from time to
time by Landlord and Tenant.
ARTICLE 23
CONDITION OF AND TITLE TO PROPERTY AND QUIET ENJOYMENT
Section 23.01 Tenant represents and agrees that the Demised
Premises, the title thereto, the sidewalks and structures adjoining the same,
any subsurface conditions thereof, and the present uses and nonuses thereof,
have been examined by Tenant and that Tenant accepts the same in the condition
or state in which they or any of them now are or in which they or any of them
will be at the commencement of the term of this Lease, without representation or
warranty, express or implied, in fact or by law, by Landlord and without
recourse to Landlord, as to the title thereto, the conformity to or compliance
with any law, ordinance, regulation, order or requirement of any federal, state,
municipal or other governmental authority, governmental regulations, the nature,
condition or usability thereof or the use or uses to which the Demised Premises
or any part thereof may be put and Landlord shall have no liability whatsoever
in respect of the condition of the Demised Premises. Without limiting the
foregoing, Landlord shall not be liable for any failure of water supply, gas or
electric current, nor for any injury or damage to person or property caused by
or resulting from gasoline, oil, steam, gas, electricity, or hurricane, tornado,
flood, wind or similar storms or disturbances, or water, rain or snow which may
leak or flow from the street, sewer, gas mains or subsurface area or from any
part of the building or buildings on the Demised Premises, or leakage of
gasoline or oil from pipes, appliances, sewer or plumbing works therein, or from
any other place, nor for interference with light or other incorporeal
hereditaments by anybody, or caused by operations by or of any public or
quasi-public work. Tenant expressly acknowledges and agrees that Landlord has
not made and is not making, and Tenant, in executing and delivering this Lease,
is not relying upon, any warranties, representations, promises or statements,
except to the extent that same are expressly set forth in this Lease. It is
understood and agreed that all understandings and agreements heretofore had
between the parties are merged in this Lease, which alone fully and completely
expresses their agreements and that the same is entered into after full
investigation, neither party relying upon any statement or representation not
embodied in this Lease, made by the other.
Section 23.02 Landlord covenants and agrees that Tenant, upon
paying the Rent, Impositions and other additional rent and other charges herein
provided for and observing and keeping all covenants, agreements and conditions
of this Lease on its part to be observed and kept, shall quietly have and enjoy
the Demised Premises during the term of this Lease without hindrance or
molestation by anyone claiming by or through Landlord, subject, however, to the
exceptions, reservations and conditions of this Lease, all covenants, easements,
restrictions, agreements and encumbrances of record, all laws, ordinances,
regulations, orders and requirements of all federal, state, municipal or other
governmental authorities now or hereafter in existence and to Article 17.
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Section 23.03 In case Landlord shall convey the Demised
Premises, all liabilities and obligations on the part of Landlord under this
Lease accruing after such conveyance shall terminate upon such conveyance, and
thereupon, all such liabilities and obligations shall, subject to the provisions
of Article 29, be binding upon the grantee. Any funds held by Landlord under
this Lease in which Tenant has an interest shall be turned over to such grantee
simultaneously with any conveyance by Landlord.
ARTICLE 24
ARBITRATION AND APPRAISAL
Section 24.01 In any case in which it is provided by the terms
of this Lease that any matter shall be determined by arbitration, such
arbitration shall be conducted in New York City by a three-member panel in
accordance with the then rules of the American Arbitration Association and shall
be a condition precedent to any court action or proceeding brought by either
party relating to such matter. Judgment upon the award or determination rendered
in such arbitration may be entered in any court having jurisdiction thereof.
ARTICLE 25
LANDLORD NOT LIABLE FOR INJURY OR DAMAGE
Section 25.01 Tenant is and shall be in exclusive control and
possession of the Demised Premises as provided herein, and Landlord shall not in
any event whatsoever be liable for any injury or damage to any property or to
any person happening on or about the Demised Premises, nor for any injury or
damage or loss (by theft or otherwise) to any property of Tenant, or of any
other person contained therein. The provisions hereof permitting Landlord to
enter and inspect the Demised Premises are made for the purpose of enabling
Landlord to be informed as to whether Tenant is complying with the agreements,
terms, covenants and conditions hereof, and to do such acts as Tenant shall fail
to do and no obligation exists on the part of Landlord to enter or inspect the
Demised Premises or upon such inspection, to cause the remedying of any
condition disclosed thereby.
ARTICLE 26
NO RENT ABATEMENT
Section 26.01 Without limiting the provisions of Section 34.08
hereof, no abatement, diminution or reduction of Rent, Impositions, other
additional rent, charges or other compensation shall be claimed by or allowed to
Tenant, or any persons claiming under it, under any circumstances,
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whether for inconvenience, discomfort, interruption of business, or otherwise,
arising from the making of alterations, changes, additions, improvements or
repairs to any building(s) now existing or which may hereafter be erected on the
Demised Premises, by virtue or because of any present or future governmental
laws, ordinances, requirements, orders, directions, rules or regulations or by
virtue or arising from, and during, the restoration of the Demised Premises
after the destruction or damage thereof by fire or other cause or the taking or
condemnation of a portion of the Demised Premises (except as provided in Article
16) or arising from any other cause or reason.
ARTICLE 27
BROKERAGE
Section 27.01 Landlord and Tenant each warrants and represents
to the other that no real estate agent, broker, salesperson, or any other
person, firm or corporation has acted on its behalf or will be entitled to any
brokerage commission, finder's fee or other compensation in connection with the
consummation of this Lease or the Demised Premises. Landlord and Tenant each
agrees to indemnify and hold the other harmless from and against any and all
loss, cost, damage, claim, expense (including, without limitation, attorneys'
fees and disbursements) and liability which the other may sustain or which may
be asserted against the other by reason of a claim for a brokerage commission,
finder's fee or other compensation made by any person, firm or corporation, with
whom the other has dealt in connection with this Lease or the Demised Premises.
ARTICLE 28
ENVIRONMENTAL REQUIREMENTS
Section 28.01 For purposes of this Article 28, the following
capitalized terms shall have the respective meanings assigned to them below,
which meanings shall be applicable equally to the singular and plural forms of
the terms so defined:
"Applicable Law" means any applicable law, including (without
limitation) any: (i) federal, state, territorial, county, municipal or other
governmental or quasi-governmental law, statute, ordinance, rule, regulation,
requirement or use or disposal classification or restriction, whether domestic
or foreign; (ii) judicial, administrative or other governmental or
quasi-governmental order, injunction, writ, judgment, decree, ruling,
interpretation, finding or other directive, whether domestic or foreign; or
(iii) arbitrator's or referee's decision, finding or award which is binding.
"CERCLA" means the Comprehensive Environmental Response
Compensation and Liability Act of 1980, as amended (42 U.S.C. ss.ss. 9601 et
seq.), and any regulations promulgated thereunder and any judicial or
administrative interpretation thereof.
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"Claim" means any asserted claim or demand, of whatsoever kind
or nature, by any Person, for any actual or alleged Liabilities and Costs,
whether based in contract, tort, implied or express warranty, strict liability,
criminal or civil statute, ordinance or regulation, common law or otherwise.
"Contaminant" means any pollutant, hazardous substance,
hazardous chemical, toxic substance, hazardous waste or special waste, as those
terms are defined in federal, state or local environmental laws or regulations,
radioactive material, petroleum, crude oil, any petroleum-derived substance,
product or waste, including, but not limited to, polychlorinated biphenyls and
asbestos.
"Environmental, Health and Safety Requirements of Law" means
all Applicable Laws relating to or addressing the environment, health or safety,
including, but not limited to CERCLA.
"Environmental Permits" means all Permits required by any
Governmental Authority under any Environmental, Health and Safety Requirement of
Law relating to or affecting the Demised Premises.
"Governmental Authority" means any nation, state, sovereign,
or government, any federal, regional, state or local or political subdivision
and any entity exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government.
"Indemnified Parties" means (i) Landlord, (ii) the directors,
officers, agents, servants, employees and shareholders of Landlord and (iii) the
heirs, legal representatives, successors and assigns of the Persons described in
clauses (i) and (ii) of this definition.
"Liabilities and Costs" means all liabilities, claims,
obligations, responsibilities, losses, damages, punitive damages, consequential
damages, treble damages, charges, costs and expenses (including, without
limitation, attorneys', experts' and consulting fees and costs of investigation
and feasibility studies), fines, penalties and monetary sanctions or interest.
"Permits" means any permit, consent, approval, authorization,
license, variance or permission from any Person or Governmental Authority.
"Person" means an individual, partnership, corporation
(including a business trust), joint stock company, limited liability company,
trust, unincorporated association, joint venture or other entity, or a
government or any political subdivision or agency thereof.
"RCRA" means the Resource Conservation and Recovery Act (42
U.S.C. ss.6901, et seq.) and any regulations promulgated thereunder and any
judicial or administrative interpretation thereof.
"Release" means any release, spill, emission, leaking,
pumping, injection, deposit, disposal, discharge, dispersal, leaching or
migration into the environment.
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"Remedial Action" means any action required by a Governmental
Authority to (i) clean up, remove or treat Contaminants in the environment; (ii)
prevent a Release or threat of a Release or minimize the further Release of
Contaminants so they do not migrate or endanger or threaten to endanger public
health or the environment; (iii) perform pre-remedial studies and investigations
and post-remedial monitoring and care; or (iv) cure a violation of any
Environmental, Health and Safety Requirement of Law.
"User" shall mean any Person now or hereafter occupying,
owning (whether directly or indirectly), operating, managing, leasing,
subleasing, possessing, using or controlling the Demised Premises or any part or
aspect of the Demised Premises.
Section 28.02
(a) Tenant shall comply strictly and in all respects with the
requirements of all Environmental, Health and Safety Requirements of Laws
applicable to the Demised Premises including, without limitation, all
environmental cleanup requirements, and shall notify Tenant immediately in the
event of any Release (other than a Release which does not violate any Applicable
Law) or discovery of any Contaminant (other than a Contaminant used or stored in
accordance with all Applicable Laws) at, upon, under or within the Demised
Premises. Tenant shall promptly forward to Landlord copies of all orders,
notices, permits, applications or other communications and reports in connection
with any Release (other than a Release which does not violate any Applicable
Law) or the presence of any Contaminant (other than a Contaminant used or stored
in accordance with all Applicable Laws), or any other matters relating to any
Environmental, Health and Safety Requirements of Law, as they may affect the
Demised Premises.
(b) In the event of any Release of a Contaminant affecting the
Demised Premises (other than a Release which does not violate any Applicable
Law), whether or not the same originates or emanates from the Demised Premises
or any contiguous real estate, and/or if Tenant shall fail to comply with any
Environmental, Health and Safety Requirements of Law, Landlord shall have the
right (but shall be under no duty or obligation whatsoever), to cause such work
to be performed at the Demised Premises and/or take any and all other actions as
Landlord shall deem necessary or advisable to remedy said Release or cure said
failure of compliance, and Tenant shall reimburse Landlord, on demand, for all
costs incurred on the account thereof, together with interest at the rate set
forth in Section 2.03 hereof.
Section 28.03 Tenant covenants and agrees, to the fullest
extent permitted by Applicable Law, on demand, to protect, indemnify, reimburse,
hold harmless and defend the Indemnified Parties from and against any
Liabilities and Costs, and all Claims that may be incurred by, imposed upon, or
asserted or awarded against any Indemnified Party, under common law or on
equitable cause, or on contract or otherwise, arising out of, related to, or in
connection with the following matters (collectively, the "Indemnified Matters"):
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(i) any violation or alleged violation of any Environmental,
Health and Safety Requirement of Law applicable to the Demised Premises
or the operations of any User with respect to the Demised Premises;
(ii) any transport, treatment, recycling, storage, disposal or
arrangement therefor, of any Contaminant to, at or from the Demised
Premises;
(iii) any Release or threatened Release of any Contaminant at,
to or from the Demised Premises, occurring during the term of this
Lease;
(iv) any personal injury (including wrongful death) arising
out of any of the conditions or activities described in this Section
28.03, including, without limitation, damages assessed for, or arising
from, the maintenance of a public or private nuisance or the carrying
on of an abnormally dangerous activity at or near the Demised Premises;
(v) any exposure to any products, raw materials or
Contaminants while manufactured, generated, handled, processed, stored,
installed or used at the Demised Premises or as part of the operations
of any User in connection with the Demised Premises;
(vi) any violation of any Environmental Permits with respect
to the Demised Premises or the operations thereon or relating thereto
by any Person;
(vii) Tenant's failure to comply with the provisions of this
Article 28;
(viii) any Remedial Action arising out of, related to, any of
the foregoing items (i) through (vii);
provided, however, that Tenant shall not be liable to any Indemnified Party for
any Indemnified Matter attributable to the negligence or misconduct of any
Indemnified Party.
Section 28.04 Tenant shall permit Landlord and Landlord's
agents, servants, and employees, including but not limited to legal counsel,
environmental consultants, and engineers, access to the Demised Premises for the
purposes of environmental inspections and sampling during regular business
hours, or during other hours either by agreement of the parties or in the event
of any environmental emergency. In the case of any such inspection or sampling,
Tenant shall not restrict access to any part of the Demised Premises, and Tenant
shall not impose any conditions to access. If Landlord's environmental
inspection shall include sampling and testing of the Demised Premises, Landlord
shall use its best efforts to avoid interfering with Tenant's use of the Demised
Premises, and upon completion of sampling and testing shall repair and restore
the affected areas of the Demised Premises from any damage caused by the
sampling and testing.
Section 28.05
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(a) Prior to the termination of the Lease term Tenant shall,
at Landlord's option, hire a consultant satisfactory to Landlord to undertake
sampling at the Demised Premises sufficient to determine whether or not Tenant's
operations have resulted in a Release of a Contaminant at, on or from the
Demised Premises. Tenant's sampling shall, at a minimum, establish the integrity
of all underground storage tanks, if any, at the Demised Premises. Should the
sampling reveal any Release of a Contaminant in violation of any Environmental,
Health and Safety Requirements of Law, then Tenant shall, at Tenant's expense,
promptly clean up the Demised Premises in accordance with all Environmental
Health and Safety Requirements of Law.
(b) Tenant shall promptly notify Landlord as to any liens
threatened or attached against the Demised Premises pursuant to any
Environmental Health and Safety Requirements of Law. If such a lien is filed
against the Demised Premises, then Tenant shall, within thirty (30) days from
the date that the lien is placed against the Demised Premises, and at any rate
prior to the date any Governmental Authority commences proceedings to sell the
Demised Premises pursuant to the lien, either: (a) pay the claim and remove the
lien from the Demised Premises; or (b) furnish (i) a bond satisfactory to
Landlord in the amount of the claim out of which the lien arises, (ii) a cash
deposit in the amount of the claim out of which the lien arises, or (iii) other
security satisfactory to the Landlord in an amount sufficient to discharge the
claim out of which the lien arises.
Section 28.06 Tenant's obligations under this Article 28 shall
survive the expiration or earlier termination of this Lease with respect to any
Release of a Contaminant on or from the Demised Premises occurring during the
term of this Lease, or any period thereafter during which Tenant holds over.
ARTICLE 29
LIMITATION ON LANDLORD'S LIABILITY
Section 29.01 Tenant hereby agrees that the promises and
obligations of Landlord contained herein are made for the sole purpose of
establishing the existence of said promises and obligations, Tenant's source of
satisfaction of said promises and obligations in the event of Landlord's breach
thereof being limited to Landlord's interest in the Demised Premises, the rents,
issues and profits therefrom, the fixtures and equipment contained in the
Demised Premises belonging to Landlord and the rights of Landlord in any
condemnation awards and insurance proceeds and policies, all as described
herein, and Tenant agrees it shall not seek to enforce any judgment for any sum
of money that is or may be payable hereunder out of any other assets of Landlord
or of Landlord's agents, incorporators, shareholders, officers, directors,
partners, joint venturers, principals or affiliates.
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ARTICLE 30
APPLICATION, TRANSFER AND RETURN OF SECURITY
Section 30.01 Tenant shall deposit with Landlord so that
Landlord shall at all times hold an amount equal to two months' Rent, at the
then current applicable rate, said sum to be held as security for the faithful
performance and observance by Tenant of the terms, provisions, and conditions of
this Lease. Tenant shall make the initial deposit with Landlord of such security
upon its execution of this Lease. It is agreed that in the event Tenant defaults
beyond the expiration of any applicable grace period in respect of any of the
terms, provisions, and conditions of this Lease, including, but not limited to,
the payment of Rent, Impositions or other additional rent, Landlord may use,
apply or retain the whole or any part of the security so deposited to the extent
required for the payment of any Rent, Impositions or other additional rent or
any other sum as to which Tenant is in default or for any sum which Landlord may
expend or may be required to expend by reason of Tenant's default in respect of
any of the terms, covenants, and conditions of this Lease, including but not
limited to, any damages or deficiency owing by Tenant pursuant to Article 19
hereof, whether such damages or deficiency accrued before or after summary
proceedings or other re-entry by Landlord. In the event of an increase in the
annual rental rate pursuant to Section 2.01, Tenant shall automatically increase
the security deposit, or in the event of any such use, application or retention
of the security deposit by Landlord, Tenant shall, upon demand by Landlord,
forthwith restore said deposit, such that in any case the deposit at all times
shall be in an amount equal to two months' Rent at the then applicable rate and
Tenant's failure to do so within five (5) days after any increase in the annual
rental rate or after such demand by Landlord, as applicable, shall carry with it
the same consequences as failure to pay any installment of Rent due under this
Lease.
Section 30.02 In the event that Tenant shall fully and
faithfully comply with all of the terms, provisions, covenants, and conditions
of this Lease, the security shall be returned to Tenant after the date fixed as
the end of the term of this Lease and after delivery of possession of the
Demised Premises to Landlord.
Section 30.03 In the event of a sale of the land and building
comprising the Demised Premises, Landlord shall transfer the unapplied security
to the vendee. Landlord shall thereupon be released by Tenant from all liability
for the return of such security and Tenant shall look solely to the new landlord
for the return of said security. The provisions of this Section 31.03 shall
apply to every transfer or assignment made of the security to a new landlord.
Section 30.04 Tenant further covenants that it will not assign
or encumber or attempt to assign or encumber the moneys deposited pursuant
hereto as security, and that neither Landlord nor its successors or assigns
shall be bound by any such assignment, encumbrance or attempted assignment or
encumbrance.
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ARTICLE 31
OPTION TO RENEW
Section 31.01 Tenant, at its option, may renew the term of
this Lease for two (2) additional terms of five (5) years each, by serving
written notice of the exercise thereof upon Landlord, in the case of the first
renewal term, no later than eighteen (18) months prior to the expiration of the
initial term hereof and, in the case of the second renewal term, no later than
eighteen (18) months prior to the expiration of the first renewal term hereof
(time being of the essence in each such case); provided, however, that any
exercise of Tenant's option to renew shall be deemed ipso facto null and void
and the renewal of the term of this Lease pursuant to such exercise shall be and
become null and void automatically without the need for any further action, not
withstanding the exercise or attempted exercise of such renewal option by Tenant
(a) if this Lease shall not be in full force and effect or if any Event of
Default shall exist on the last day of the initial term (in the case of the
first renewal option) or on the last day of the first renewal term (in the case
of the second renewal option) or the date upon which Tenant exercises such
renewal option or (b) if Tenant has sublet the Demised Premises or assigned this
Lease. If the term of this Lease is renewed as provided above, such renewal
shall be upon all of the same terms, covenants and conditions as herein provided
(including, without limitation, all provisions as to the payment of Rent,
Impositions and other additional rent), except that in the second renewal term
Tenant shall have no right to renew the term of this Lease.
ARTICLE 32
RIGHT OF FIRST REFUSAL
Section 32.01
(a) If Landlord at any time during the term or any renewal
term of this Lease, receives an offer (the "Offer") to purchase the Demised
Premises, or if the sole asset of Landlord is the Demised Premises, an offer to
purchase all of the stock of Landlord (the "Stock"), which Landlord desires to
accept, Landlord shall give Tenant notice in writing of the Offer setting forth
the amount of the proposed purchase price and all other material terms and
conditions of the Offer ("Landlord's Notice"). Tenant shall have the right of
first refusal to purchase the Demised Premises or the Stock, as the case may be,
which right shall be exercised by giving written notice to Landlord ("Tenant's
Notice"), within ten (10) days of the giving of Landlord's Notice, of Tenant's
agreement and intention to purchase the Demised Premises or the Stock, as
applicable, at the same price and on the same terms as those set forth in the
Offer (except that the purchase price shall be payable all in cash regardless of
the terms of the Offer regarding such payment), and by delivering to Landlord,
together with Tenant's Notice, an unendorsed certified or official bank check,
payable to the order of Landlord, in the amount of ten percent (10%) of the
total purchase price, set forth in the Offer. The proceeds of such check shall
be held by Landlord as a downpayment against the total purchase
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price payable by Tenant. Notwithstanding the foregoing, if, prior to Landlord's
receipt of Tenant's Notice, the Offer is withdrawn, rescinded or terminated by
the prospective purchaser or rejected by Landlord, then Landlord's Notice shall
be deemed withdrawn, in which event this Lease and all of its terms and
conditions, including this Article 32, shall remain in full force and effect, as
though Landlord had never received the Offer. If Tenant does not give Tenant's
Notice within the period and in the manner required herein, this Lease and all
of its terms and conditions, excluding this Article 32, shall nevertheless
remain in full force and effect and the provisions of this Article 32 shall be
deemed deleted and of no further force or effect.
(b) Tenant's right of first refusal hereunder shall be deemed
ipso facto deleted and automatically null and void, without the need for any
further action, notwithstanding the exercise or attempted exercise of such right
by Tenant, if this Lease shall not be in full force and effect or if any Event
of Default shall exist on the day upon which Tenant shall exercise its right
hereunder of if the Tenant is not then Sleepy's, Inc.
(c) Time shall be of the essence with respect to all
provisions of this Article 32.
(d) Notwithstanding the foregoing, this Article 32 shall not
apply and shall be deemed ipso facto deleted and automatically null and void if
the Tenant is not Sleepy's, Inc.
ARTICLE 33
OPTION TO PURCHASE
Section 33.01 Provided that the Tenant is Sleepy's, Inc., a
New York corporation, Tenant, at its option, and in accordance with the terms of
this Article 33, may purchase the Demised Premises for a purchase price equal to
the appraised fair market value of the Demised Premises, determined in
accordance with the provisions of Section 33.02 hereof, plus the amount of any
prepayment premiums, penalties or other charges of any kind that would be
incurred by Landlord in prepaying any mortgages then encumbering the Demised
Premises that Landlord is required to pay in connection with the sale to Tenant,
and otherwise upon the terms and provisions of the Sale- Purchase Agreement
annexed hereto as Exhibit D (the "Purchase Agreement"). Tenant may exercise such
option only during the calendar months of June, 2001 and June, 2004, provided
however, Tenant's exercise of the purchase option during June, 2001 is subject
to the provisions of Section 33.03. Such option must be exercised by serving
written notice of the exercise thereof upon Landlord, accompanied by a copy of
the Purchase Agreement, dated of even date with said notice, duly executed by
Sleepy's, Inc., and by an unendorsed certified or official bank check (the
"Check"), payable to the order of Landlord, on account of the purchase price, in
an amount equal to $100,000.00; provided, however, that Tenant's option to
purchase shall be deemed ipso facto deleted and null and void automatically
without the need for any further action notwithstanding the exercise or
attempted exercise of such option by Tenant if this Lease shall not be in full
force and effect, or if any Event of Default shall exist on the day upon which
Tenant shall exercise such option or if the
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Tenant is not then Sleepy's, Inc. If Tenant exercises its option pursuant to
this Section 33.01 during June, 2001, Landlord's obligation to convey the
Demised Premises to Tenant shall be subject to, and limited by the provisions of
Section 33.03. Time shall be of the essence with respect to all provisions of
this Article 33.
Section 33.02
(a) Landlord shall make the initial determination of the fair
market value of the Demised Premises and shall notify Tenant of such
determination within sixty (60) days of Landlord's timely receipt of Tenant's
notice of exercise of its option to purchase. If Tenant disputes Landlord's
determination, Tenant shall give notice of such dispute (the "Dispute Notice")
within fifteen (15) days after receipt of Landlord's determination.
(b) If Tenant fails to give the Dispute Notice in a timely
manner, then Landlord's determination of the fair market value of the Demised
Premises shall be final and binding for the purposes of this Section 33.02. If
Tenant does give the Dispute Notice then the appraisal of the fair market value
of the Demised Premises shall be made as follows:
(i) Within twenty (20) days after Tenant gives the
Dispute Notice (such twenty (20) day period shall be referred to as the
"Selection Period for the Parties' Appraisers"), Landlord and Tenant, by notice
to the other, shall each appoint a disinterested person of recognized competence
in the field as an appraiser. The appraisers thus appointed shall appoint a
third disinterested person of recognized competence in the field and such three
appraisers, as promptly as possible, shall determine the fair market value of
the Demised Premises;
(ii) if either Landlord or Tenant does not appoint
its appraiser as aforesaid, then the other party's appraiser alone shall
determine the fair market value of the Demised Premises;
(iii) if within fifteen (15) days after the
expiration of the Selection Period for the Parties' Appraisers, the two
appraisers appointed by the parties are unable to agree upon the appointment of
a third appraiser, they shall give notice of such failure to the parties, and,
if the parties fail to agree upon the selection of the third appraiser within
five (5) days after the appraisers give such notice, then within five (5) days
thereafter, either of the parties, upon notice to the other party, may apply for
the appointment of the third appraiser to a court of the State of New York
having a situs in New York County;
(iv) All appraisers, in addition to being persons of
recognized competence in the field of appraisal, shall be MAI appraisers with at
least ten years prior experience. The appraisers shall base their determination
on the highest and best use of the Demised Premises, as-is and unencumbered by
this Lease or any other lease or encumbrance, and shall not have the power to
add to, modify or change any of the provisions of this Lease;
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(v) Each of the parties shall each be entitled to
present evidence and argument to the appraisers. Each appraiser shall determine,
in his or her judgment, the fair market value of the Demised Premises. If there
is only one appraiser, then the determination of that appraiser shall be
conclusive and final and binding on the parties and judgment upon the same may
be entered in any court having jurisdiction thereof. If there are three
appraisers, then the fair market value of the Demised Premises shall be the
average of the three appraisals, provided however that for the purposes of
computing such average, the highest and/or lowest appraisal shall be eliminated
if such appraisal is ten (10%) percent more (in the case of the highest
appraisal) or less (in the case of the lowest appraisal) than the middle
appraisal. Such average shall be conclusive and final and binding upon the
parties and judgment upon the same may be entered in any court having
jurisdiction thereof. The appraisers shall give notice to the parties stating
their determination, and shall furnish to each party a copy of such
determination signed by them;
(vi) Each party shall pay the costs, fees and
expenses of the appraiser selected by that party and costs, fees and the
expenses of the third appraiser and all other aspects of this appraisal process
shall be borne equally by the parties; and
(vii) In the event of the failure, refusal or
inability of any appraiser to act, a new appraiser shall be appointed in his
stead within ten (10) days, which appointment shall be made in the same manner
as hereinbefore provided for the appointment of the appraiser so failing,
refusing or unable to act.
Section 33.03 If Tenant properly exercises its option pursuant
to Section 33.01 during June, 2001, Landlord, at its option and in its sole
discretion, may nullify the exercise of the option made during June, 2001 and in
lieu of conveying the Demised Premises to Tenant in accordance with Section
33.01, shall reduce the annual Rent for the then current Lease Year to an amount
equal to the greater of (a) the then reasonable initial annual fair market fixed
rent for a triple net lease with a term of thirteen years, containing provisions
for annual rent increases on the same terms as provided in Section 2.01 hereof
and for comparable buildings in Nassau County, New York (the "Fair Market
Rent"), and (b) the then current annual Rent less $100,000. (The amount of the
reduction of the Rent rate effectuated pursuant to this Section 33.03 shall be
referred to herein as the "Rent Reduction".) The Rent, as so adjusted, shall
remain subject to further annual adjustments in accordance with Section 2.01.
Section 33.04
(a) If Landlord, pursuant to Section 33.03, elects to adjust
the annual Rent rate in lieu of conveying the Demised Premises to Tenant in
accordance with Section 33.01, then Landlord shall make the initial
determination of the Fair Market Rent and shall notify Tenant of such
determination within sixty (60) days of Landlord's timely receipt of Tenant's
notice of exercise of its option to purchase. If Tenant disputes Landlord's
determination, Tenant shall give notice of such dispute (the "Dispute Notice")
within fifteen (15) days after receipt of Landlord's determination.
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(b) If Tenant fails to give the Dispute Notice in a timely
manner, then Landlord's determination of the Fair Market Rent shall be final and
binding for the purposes of this Section 33.04. If Tenant does give the Dispute
Notice then the appraisal of the Fair Market Rent shall be made as follows:
(i) Within twenty (20) days after Tenant gives the
Dispute Notice (such twenty (20) day period shall be referred to as the
"Selection Period for the Parties' Appraisers"), Landlord and Tenant, by notice
to the other, shall each appoint a disinterested person of recognized competence
in the field as an appraiser. The appraisers thus appointed shall appoint a
third disinterested person of recognized competence in the field and such three
appraisers, as promptly as possible, shall determine the Fair Market Rent;
(ii) if either Landlord or Tenant does not appoint
its appraiser as aforesaid, then the other party's appraiser alone shall
determine the Fair Market Rent;
(iii) if within fifteen (15) days after the
expiration of the Selection Period for the Parties' Appraisers, the two
appraisers appointed by the parties are unable to agree upon the appointment of
a third appraiser, they shall give notice of such failure to the parties, and,
if the parties fail to agree upon the selection of the third appraiser within
five (5) days after the appraisers give such notice, then within five (5) days
thereafter, either of the parties, upon notice to the other party, may apply for
the appointment of the third appraiser to a court of the State of New York
having a situs in New York County;
(iv) All appraisers, in addition to being persons of
recognized competence in the field of appraisal, shall be MAI appraisers with at
least ten years prior experience. The appraisers shall not have the power to add
to, modify or change any of the provisions of this Lease;
(v) Each of the parties shall each be entitled to
present evidence and argument to the appraisers. Each appraiser shall determine,
in his or her judgment, the Fair Market Rent. If there is only one appraiser,
then the determination of that appraiser shall be conclusive and final and
binding on the parties and judgment upon the same may be entered in any court
having jurisdiction thereof. If there are three appraisers, then the Fair Market
Rent shall be the average of the three appraisals, provided however that for the
purposes of computing such average, the highest and/or lowest appraisal shall be
eliminated if such appraisal is ten (10%) percent more (in the case of the
highest appraisal) or less (in the case of the lowest appraisal) than the middle
appraisal. Such average shall be conclusive and final and binding upon the
parties and judgment upon the same may be entered in any court having
jurisdiction thereof. The appraisers shall give notice to the parties stating
their determination, and shall furnish to each party a copy of such
determination signed by them;
(vi) Each party shall pay the costs, fees and
expenses of the appraiser selected by that party and costs, fees and the
expenses of the third appraiser and all other aspects of this appraisal process
shall be borne equally by the parties; and
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<PAGE>
<PAGE>
(vii) In the event of the failure, refusal or
inability of any appraiser to act, a new appraiser shall be appointed in his
stead within ten (10) days, which appointment shall be made in the same manner
as hereinbefore provided for the appointment of the appraiser so failing,
refusing or unable to act.
Section 33.05 If Tenant does not exercise its option pursuant
to Section 33.01 during June, 2004, then on July __, 2004, the annual Rent shall
be increased by an amount equal to the Rent Reduction, if any. This increase
shall be deemed to occur after any increase in the Rent pursuant to Section 2.01
which would also be effective for the Lease Year commencing on July __, 2004.
ARTICLE 34
MISCELLANEOUS
Section 34.01 Landlord and Tenant, so far as permitted by law,
waive and will waive trial by jury in any action, proceeding or counterclaim
brought by either of the parties hereto against the other on any matters
whatsoever arising out of or in any way connected with this Lease, the
relationship of Landlord and Tenant, Tenant's use or occupancy of the Demised
Premises, or any claim of injury or damage.
Section 34.02 The captions of this Lease and any index
preceding this Lease are for convenience and reference only and in no way
define, limit or describe the scope or intent of this Lease.
Section 34.03 All terms and words used in this Lease
regardless of the number and gender in which they are used shall be deemed and
construed to include any other number, and any other gender, masculine,
feminine, or neuter, as the context or sense of this Lease or any Article,
Section, paragraph or clause hereof may require, with the same effect as if such
numbers and words had been fully and properly written in the required number and
gender.
Section 34.04 This Lease contains the entire agreement between
the parties and cannot be changed, modified or terminated orally, but only by an
instrument in writing executed by Landlord and Tenant.
Section 34.05 The covenants and agreements herein contained
shall bind and inure to the benefit of Landlord and its successors and assigns
and of Tenant and its successors and assigns, except as otherwise provided
herein.
Section 34.06 Wherever in this Lease Landlord's consent or
approval is required and Landlord is required to be reasonable, if Landlord
shall refuse such consent or approval, Tenant in no event shall be entitled to
make, nor shall Tenant make, any claim, and Tenant hereby waives any claim, for
money damages (nor shall Tenant claim any money damages by way of set-off,
counterclaim or defense) based upon any claim or assertion by Tenant that
Landlord unreasonably
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<PAGE>
<PAGE>
withheld or unreasonably delayed its consent or approval. Tenant's sole remedy
shall be an action or proceeding to enforce any such provision, for specific
performance, injunction or declaratory judgment.
Section 34.07 Tenant shall pay all New York State Real
Property Transfer Taxes and Landlord and Tenant shall each pay one-half of the
New York State Real Property Transfer Gains Taxes, if any, due in connection
with the execution of this Lease and the leasehold estate created hereby.
Section 34.08 Landlord agrees to complete an addition (the
"Addition") to the Demised Premises of approximately 79,000 square feet (which
addition shall have a "footprint" of approximately 73,000 square feet and a
mezzanine of approximately 6,000 square feet), in accordance with Tenant's
previously delivered plans and specifications. Landlord represents that it will
have sufficient funds to complete such Addition. Should the Landlord fail to
complete the Addition on or before December 31, 1996, in accordance with the
provisions of this Lease, and if such failure shall continue for ten (10) days
following written notice thereof, Tenant may complete the Addition, and deduct
the reasonable, out-of-pocket costs incurred by Tenant of so doing together with
interest thereon from the date of expenditure thereof at an annual rate of the
prime rate established by The Chase Manhattan Bank, N.A. from time to time
(herein the "Prime Rate"), which shall not be in excess of the maximum legal
rate of interest, from any Rent or other amounts payable under this Lease.
Section 34.09 The term "Landlord", as used in this Lease shall
be limited to mean and include only the owner or owners at the time in question
of the Demised Premises, and in the event of any transfer or transfers of the
Demised Premises, Landlord herein named (and in case of any subsequent transfer
or conveyance, the then transferor of the Demised Premises) shall be
automatically freed and relieved from and after the date of such transfer of all
liability with respect to the performance of any covenants or obligations on the
part of Landlord contained in this Lease theretofore and thereafter to be
performed.
Section 34.10 As used in this Lease the term business day
shall mean any day except a Saturday or Sunday or a legal holiday.
Section 34.11 Section 34.10 This Lease shall be deemed to
modify, amend, extend, replace and restate in full the terms and provisions of
that certain existing lease covering the Demised Premises between the Landlord
and Tenant, dated June 14, 1994.
IN WITNESS WHEREOF, the parties hereto have caused this Lease
to be duly signed the day and year first above written.
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<PAGE>
<PAGE>
LANDLORD:
BDC REALTY CORP.
By: _____________________________
Name:
Title:
By: _____________________________
Name:
Title:
TENANT:
SLEEPY'S, INC.
By: _____________________________
Name:
Title:
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<PAGE>
<PAGE>
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
On this ____ day of __________, 1996, before me personally
came _____________ to me known, who being by me duly sworn, did depose and say
that he resides at No. ___________ ________________________, that he is the
________ President of BDC Realty Corp., the corporation described in and which
executed the foregoing instrument, and that he signed his name thereto by order
of the Board of Directors of said corporation.
____________________________________
Notary Public
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
On this ____ day of __________, 1996, before me personally
came _____________ to me known, who being by me duly sworn, did depose and say
that he resides at No. ___________ ________________________, that he is the
________ President of BDC Realty Corp., the corporation described in and which
executed the foregoing instrument, and that he signed his name thereto by order
of the Board of Directors of said corporation.
____________________________________
Notary Public
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
On this ___ day of _________, 1996, before me personally came
_________________ to me known, who being by me duly sworn, did depose and say
that he resides at No. ____________ _______________________________, that he is
the _________ President of Sleepy's, Inc., the corporation described in and
which executed the foregoing instrument, and that he signed his name thereto by
order of the Board of Directors of said corporation.
____________________________________
Notary Public
- 56 -
<PAGE>
<PAGE>
EXHIBIT A
(legal description)
ALL that certain plot, piece or parcel of land with the buildings and
improvements thereon erected, situate, lying and being near Farmingdale, Town of
Oyster Bay, County of Nassau and State of New York, more particularly bounded
and described as follows:
BEGINNING at a point on the Easterly side of Seaford Oyster Bay Expressway, said
point being the dividing line of the premises about to be described and Land now
or formerly of Cascelta Corporation said point is also distant 935.7 more or
less southerly from the extreme southerly end of the arc of a curve connecting
the southerly side of Central Avenue and the easterly side of Seaford Oyster Bay
Expressway;
RUNNING THENCE South 79 degrees 09 minutes 28 seconds East 894.81 feet, which
point is also distant 500.63 feet southerly from land of Long Island Railroad;
THENCE South 03 degrees 43 minutes 22 seconds West 552 feet;
THENCE North 79 degrees 09 minutes 28 seconds West 981.25 feet to the easterly
side of Seaford Oyster Bay Expressway;
RUNNING THENCE North 12 degrees 43 minutes 38 seconds East along the easterly
side of Seaford Oyster Bay Expressway 548.04 feet to the point or place of
BEGINNING.
- 57 -
<PAGE>
<PAGE>
EXHIBIT B
(Form of Subordination, Non-Disturbance and
Attornment Agreement)
- 58 -
<PAGE>
<PAGE>
MORTGAGEE'S NON-DISTURBANCE AGREEMENT
AND
TENANT'S AGREEMENT TO ATTORN
THIS AGREEMENT, made this ____ day of _____ 1996, by and among FlEET BANK,
N.A., a national banking association organized and existing under and by virtue
of the laws of the United States of America, having a place of business at 300
Broadhollow Road, Melville, New York (the "Mortgagee"), BDC REALTY CORP., a New
York corporation, having a place of business at 175 South Central Avenue,
Bethpage, New York (the "Landlord"), and SLEEPY'S, INC., a New York corporation,
having a place of business at 175 South Central Avenue, Bethpage, New York (the
"Tenant").
BACKGROUND
The Landlord is the owner of the improved real property described in
Schedule A, annexed hereto and made a part hereof, located in the County of
Nassau, State of New York and of the improvements erected thereon (collectively,
the "Premises").
The Tenant has entered into a certain lease (the "Lease"), dated the ___
day of ______, 19__. with the Landlord covering a portion of the Premises
(hereinafter sometimes referred to, as the context requires, as the "Leased
Space"), a memorandum of the Lease having been recorded on the _____ day of
_______, 199_, the office of the ___________ in Liber/Reel _____ Page or is
intended to be recorded prior to the recording of this Agreement. The Lease is a
modification, amendment, extension, replacement and restatement of an existing
lease, between the Landlord and the Tenant, covering the Premises, dated June
14, 1994.
The Mortgagee is the owner and holder of a certain mortgages (set forth and
described on Schedule B, annexed hereto and made a part hereof), encumbering the
Premises, which mortgages, together with all amendments, modifications,
extensions, consolidations, increases, supplements, spreaders and restatements
thereof, now or hereafter made, are hereinafter collectively referred to as the
"Mortgage", together with the evidence of indebtedness (collectively, the
"Note") which it secures and other documents executed in connection therewith
and any amendments, modifications, extensions, consolidations, increases,
supplements, spreaders and restatements thereof, are hereinafter referred to as
the "Loan Documents".
<PAGE>
<PAGE>
-2-
The Tenant has requested that the Mortgagee consents to the Lease and
agrees not to disturb the Tenant's rights and options under the Lease,
including, without limitation, Tenant's possessory rights in the Leased Space
and Tenant's Right of First Refusal and Option to Purchase, as set forth in
Articles 32 and 33, respectively, of the Lease (collectively, "Tenant's Rights
and Options"), in the event the Mortgagee should foreclose the Mortgage,
provided that the Tenant is not in default under the Lease after the expiration
of any applicable grace and notice periods, and provided that the Tenant attorns
to the Mortgagee or the purchaser at the foreclosure sale.
The Mortgagee is willing to so agree on the terms and conditions
hereinafter provided.
NOW, THEREFORE, in consideration of the premises, the mutual covenants
contained herein and TEN AND 00/100 ($10.00) DOLLARS and other good and valuable
consideration each to the other in hand paid, receipt of which is hereby
acknowledged, the Mortgagee and the Tenant hereby agree as follows:
1. Lease Subordinate to Mortgage. The Lease and all of the terms thereof
(including without limitation any options to purchase, rights of first refusal
and any similar rights) are and shall be subject and subordinate in all respects
to the lien, created by the Loan Documents and all advances (whether optional or
obligatory) and/or payments made, or to be made, under any Loan Document. In
confirmation thereof, Tenant shall promptly execute, acknowledge and deliver to
the Mortgagee any instruments that the Mortgagee may request from time to time
to evidence the foregoing, and the Tenant hereby irrevocably constitutes and
appoints the Mortgagee as the Tenant's attorney-in-fact, coupled with an
interest, to execute and deliver any such instruments for and on behalf of the
Tenant if the Tenant fails to execute, acknowledge and/or deliver any such
instrument within ten (10) days after request therefor.
2. Non-Disturbance of Tenant. Provided the Tenant complies with this
Agreement and is not in default under the terms of the Lease, beyond the
expiration of any applicable grace and notice periods, in the payment of fixed
rent or additional rent (collectively, the "Rent") or the performance of any of
the terms, conditions, covenants, clauses or agreements on its part to be
performed under the Lease, as of the date the Mortgagee files a lis pendens in,
or otherwise commences a foreclosure action, or at any time thereafter, no
default under the Mortgage, and no proceeding to foreclose the same will disturb
the Tenant's possession under the Lease or Tenant's Rights and Options, and the
Lease, and Tenant's rights thereunder, will not be affected or cut off thereby
(except to the extent that the Tenant's right to rece*e or set off any moneys or
obligations owed or to be performed by the Mortgagee's predecessors in title
shall not be enforceable thereafter against the Mortgagee or any subsequent
owner) and notwithstanding any such foreclosure or other acquisition of the
Premises by the Mortgagee, the Lease will be recognized as
<PAGE>
<PAGE>
-3-
a direct lease from the Mortgagee or any other party acquiring the Premises upon
the foreclosure sale, and the Mortgagee, or any subsequent owner, shall not be:
(a) liable for any previous act or omission of Landlord under the Lease, (b)
subject to any offset, claim, or counterclaim which shall theretofore have
accrued to the Tenant against the Landlord, (c) have any obligation with respect
to any security deposited under the Lease unless such security has been
physically delivered to the Mortgagee, (d) bound by any previous modification of
the Lease unless such modification shall have been expressly approved in writing
by the Mortgagee, (e) bound by any previous prepayment of Rent for a period
greater than one (1) month, (f) bound by any notice of termination given by the
Landlord to the Tenant without the Mortgagee's written consent thereof, or (g)
liable under any indemnity provision of whatever nature contained in the Lease
including, but not limited to, any environmental indemnification, which
indemnity obligation may arise by reason of the occurrence of (i) an event, (ii)
the failure of performance, or (iii) any state of fact, any of which occurred
prior to the taking of title to the Premises by the Mortgagee or its nominee.
3. Mortgagee Not Liable for Construction. Any provision of this Agreement
to the contrary notwithstanding, the Mortgagee shall not be bound by any
provisions in the Lease which obligates the Landlord to erect or complete any
building, perform any construction work, make any improvements to the Leased
Space, expand or rehabilitate any existing improvements or repair or restore any
improvements following any casualty or a taking of the Premises in condemnation.
4. Tenant Certification. The Tenant certifies that the term of the Lease
has commenced, that it is the complete agreement between the Landlord and the
Tenant, and is presently in full force and effect and unmodified; that the
Tenant has accepted possession of the Leased Space and that any improvements
required by the terms of the Lease have been completed to the satisfaction of
the Tenant; that no Rent under the Lease has been paid more than one (1) month
in advance of its due date; and that the Tenant as of this date, has no charge,
lien or claim of offset under the Lease, or otherwise, against the Rents or
other charges due or to become due thereunder.
5. No Set Off. If the Mortgagee elects to accept from the then mortgagor a
deed in lieu of foreclosure, the Tenant's right to receive or set off any moneys
or obligations owed or to be performed by the then Landlord shall not be
enforceable thereafter against the Mortgagee or any subsequent owner of the
Premises.
6. Attornment. The Tenant will, upon request by the Mortgagee, or any
subsequent owner of the Premises, execute a written agreement "hereunder the
Tenant does confirm to the Mortgagee, or any such subsequent owner of the
Premises, the attornment provided for herein and confirm the Tenant's agreement
and obligations to the Mortgagee, or such subsequent owner, and to pay all Rents
and charges then due or to become due under the Lease to the Mortgagee or such
<PAGE>
<PAGE>
-4-
subsequent owner and its obligations to keep, observe and perform all of its
other obligations under the Lease. The Tenant hereby irrevocably constitutes and
appoints the Mortgagee as the Tenant's attorney-in-fact, coupled with an
interest, to execute and deliver any such instruments for and on behalf of the
Tenant if the Tenant fails to execute, acknowledge and/or deliver any such
instrument within ten (10) days after request therefor.
7. Notices to Mortgagee: Mortgagee's Right to Cure.
(a) The Tenant, from and after the date hereof, shall send a copy to the
Mortgagee of any notice or statement it may give to the Landlord under the Lease
at the same time such notice or statement is sent to the Landlord, as owner of
the Premises.
(b) The Tenant hereby agrees that, from and after the date hereof, in
the event of any act or omission by the Landlord, as landlord under the Lease,
which would give the Tenant the right, either immediately or after the lapse of
the period of time, to terminate the Lease, or to claim a partial or total
eviction, the Tenant will not exercise any such right (i) until it has given
written notice of such act or omission to the Mortgagee, and (ii) until a
reasonable period of time (which in no event shall be less than sixty (60) days)
to remedy such act or omission shall have elapsed following such giving of
notice and following the time when the Mortgagee shall have become entitled,
under the Mortgage, to remedy the same; provided, the Mortgagee, at its option,
shall, following the giving of such notice, have elected to commence and
continue to remedy such act or omission or to cause the same to be remedied and
diligently prosecutes such remedy to completion to the extent it is then
reasonably able to do so.
8. No Prepayment of Rent. The Tenant will neither offer nor make prepayment
of Rent for a period in excess of one (1) month nor further change the terms,
covenants, conditions and agreements of the Lease in any manner without the
express written consent of the Mortgagee.
9. Mortgagee's Lien. Nothing contained in this Agreement shall in any way
impair or affect the lien created by the Mortgage, except as specifically set
forth herein.
10. Amendment. No modification, amendment, waiver or release of any
provision of this Agreement or of any right, obligation, claim or cause of
action arising hereunder shall be valid or binding for any purpose whatsoever
unless documented in writing and duly executed by the party against whom the
same is sought to be asserted.
11. Successors and Assigns. This Agreement shall inure to the benefit of
the parties hereto, their successors and assigns; provided, however, that in the
<PAGE>
<PAGE>
-5-
event of the assignment or transfer of the interest of the Mortgagee, all
obligations and liabilities of the Mortgagee under this Agreement shall
terminate, and thereupon all such obligations and liabilities shall be the
responsibility of the party to whom the Mortgagee's interest is assigned or
transferred.
<PAGE>
<PAGE>
-6-
12. Tenant Acknowledgments.
(a) The Tenant agrees that this Agreement satisfies any condition or
requirement in the Lease relating to the granting of a non-disturbance
agreement.
(b) The Tenant acknowledges that it has notice that the Lease and the
Rent and all other sums due thereunder have been assigned to the Mortgagee as
part of the security for the Note. In the event that Mortgagee notifies the
Tenant of a default under the Mortgage, that has existed beyond the expiration
of any applicable grace and notice period, and demands that the Tenant, by
reason thereof, pay the Rent and all other sums due under the Lease to the
Mortgagee, the Tenant agrees that it will honor such demand and pay its rent and
all other sums due under the Lease directly to the Mortgagee. The Tenant shall
have no responsibility to ascertain whether such demand by the Mortgagee is
permitted under the Mortgage. The Landlord hereby waives any right, claim or
demand it may now or hereafter have against the Tenant by reason of such payment
to the Mortgagee, and any such payment to the Mortgagee shall discharge the
obligations of the Tenant to make such payment to the Landlord.
13. Notices. All notices, requests or other communications required to be
given pursuant to this Agreement shall be in writing and shall be personally
delivered; delivered by overnight courier; or mailed by registered or certified
mail, postage prepaid, with return receipt requested, addressed as follows:
If to the Landlord:
_____________________
_____________________
_____________________
Att.:________________
With a copy to:
_____________________
_____________________
_____________________
Att.:________________
<PAGE>
<PAGE>
-7-
If to the Mortgagee:
Fleet Bank, N.A.
300 Broadhollow Road
Melvlle. New York. 11747
Att:Christopher Mendelsohn
Vice-President
With a copy to:
Cullen & Dykman
100 Quentin Roosevelt Boulevard
Garden City, New York 11201-3611
Attn.: Alan B. Wolfer, Esq.
If to the Tenant:
_____________________
_____________________
_____________________
Att.:________________
With a copy to:
_____________________
_____________________
_____________________
Att.:________________
Any party may change the person or address to whom or which notices are to
be given hereunder, by notice duly given hereunder; provided, however, that any
such notice shall be deemed to have been given hereunder only when actually
received by the party to which it is addressed. Any notice or other
communication given hereunder shall be deemed to have been given or delivered,
if personally delivered or if delivered by overnight courier, upon delivery, and
if sent by mail, on the third (3rd) business Day after mailing. Each party shall
be entitled to rely on all communications which purport to be given on behalf of
any other party hereto
<PAGE>
<PAGE>
-8-
and purport to be signed by an authorized signatory of such party or the above
indicated attorneys.
14. No Warranties. The Mortgagee shall have no obligation, nor incur any
liability, with respect to any warranties of any nature whatsoever, whether
pursuant to the Lease or otherwise, including, without limitation, any
warranties respecting use, compliance with zoning, the Landlord's title, the
Landlord's authority, habitability, fitness for purpose or possession or
otherwise.
15. No Personal Liability. Anything herein or in the Lease to the contrary
notwithstanding, in the event that the Mortgagee shall acquire title to the
Premises, the Mortgagee shall have no obligation, nor incur any liability,
beyond the Mortgagee's then interest, if any, in the Premises and the Tenant
shall look exclusively to such interest of the Mortgagee, if any, in the
Premises for the payment and discharge of any obligations imposed upon the
Mortgagee hereunder or under the Lease. The Tenant further agrees that with
respect to any money judgment which it may obtain or secure against the
Mortgagee pursuant to its rights and remedies under the Lease, the Tenant shall
look solely to the estate or interest owned by the Mortgagee in the Premises or
any portion thereof, including, without limitation, the rents payable
thereunder, or interest therein and the Tenant will not collect or attempt to
collect any such judgment out of any other assets of the Mortgagee.
IN WITNESS WHEREOF, the parties hereto have respectively signed and sealed
this Agreement as of the day and year first above written.
FLEET BANK, N.A.
ATTEST/WITNESS
By:_________________________
Name:_______________________
Title:______________________
BDC REALTY CORP.
ATTEST/WITNESS
By:_________________________
Name:_______________________
Title:______________________
<PAGE>
<PAGE>
-9-
ATTEST/WITNESS SLEEPY'S, INC.
By:_________________________
Name:_______________________
Title:______________________
STATE OF NEW YORK )
) SS.:
COUNTY OF SUFFOLK )
On this _____ day of ________, 199_, before me personally came
______________, to me known, who being duly sworn, did depose and say that he
resides at __________________, that he is a Vice-President of FLEET BANK, N.A. a
national banking association the association described in and which executed the
foregoing instrument; and that he executed the foreoing instrument by authority
of the Board of Directors of said association.
________________________________
STATE OF NEW YORK )
) SS.:
COUNTY OF ________)
On this ______ day of ________, 199_, before me came ________________ to me
known, who being by me duly sworn, did depose and say that he resides at
_________________, that he is the _____________________ of BDC REALTY CORP., the
corporation described in and which executed the foregoing instrument; and
that he executed the foregoing instrument by authority of the Board of
Directors of said corporation.
________________________________
<PAGE>
<PAGE>
-10-
STATE OF NEW YORK )
) SS.:
COUNTY OF SUFFOLK )
On this_____ day of __________, 199_, before me came ______________ to me
known, who being by me duly sworn, did depose and say that he resides at
_______________, that he is the __________________ of SLEEPY'S, INC., the
corporation described in and which executed the foregoing instrument; and that
he executed the foregoing instrument by authority of the Board of Directors of
said corporation.
________________________________
<PAGE>
<PAGE>
-11-
SCHEDULE A
Property Description
<PAGE>
<PAGE>
-12-
SCHEDULE B
Description of Mortgages
<PAGE>
<PAGE>
1
FILE NO.:
TITLE NO.:
PREMISES:175 South Central Avenue, Bethpage, New York
Section:
Block:49
Lot:3
County: Nassau
================================================================================
FLEET BANK, N.A.
WITH
BCD REALTY CORP.
AND
SLEEPY'S, INC.
================================================================================
MORTGAGEE'S NON-DISTURBANCE AGREEMENT AND
TENANTS AGREEMENT TO ATTORN
================================================================================
RECORD AND RETURN BY MAIL TO:
Fleet Bank, N.A.
300 Broadhollow Road
Melville, New York 11747
Attn:Christopher Mendelsohn
Vice-President
<PAGE>
<PAGE>
EXHIBIT C
(Existing Fee Mortgages)
-59-
<PAGE>
<PAGE>
EXHIBIT D
(Sale-Purchase Agreement)
-60-
<PAGE>
<PAGE>
EXHIBIT D
SALE-PURCHASE AGREEMENT
THIS SALE-PURCHASE AGREEMENT (this "Agreement"), made this
_____ day of ___________________, ____ [which is the date of the exercise of the
option to purchase (the "Option") pursuant to the Lease dated June __, 1996
between BDC Realty Corp., as Landlord, and Sleepy's, Inc., as Tenant (the
"Lease") to which this Agreement is annexed] between the Landlord under the
Lease having an office at the address to which notices under the Lease are to be
forwarded ("Seller") and Sleepy's Inc., the Tenant under the lease on the date
hereof, having an office at the address to which notices under the Lease are to
be forwarded ("Purchaser").
W I T N E S S E T H :
1. Recitals.
In consideration of the mutual covenants and agreements
hereinafter set forth, Seller agrees to sell and convey to Purchaser, and
Purchaser agrees to purchase from Seller all those certain plots, pieces and
parcels of land located at or known as 125 South Central Avenue, Bethpage,
County of Nassau, State of New York ("Land"), more particularly described in
Exhibit "A" annexed hereto and made a part hereof, together with all easements,
rights of way, reservations, privileges, appurtenances, and other rights
pertaining thereto, all buildings, structures and improvements thereon
(collectively, "Building") and all fixtures, machinery, equipment and other
articles of personal property attached or appurtenant thereto, or used in
connection therewith and which are owned by the Seller, all oil, gas and mineral
rights, if any, all off street parking rights and spaces, all rights in all
alleys adjoining the premises, all right, title and interest, if any, of Seller
in and to any land lying in the bed of any street, road or avenue opened or
proposed, in front of or adjoining such premises, to the center line thereof,
and all right, title and interest of Seller in and to any award made or to be
made in lieu thereof and in and to any unpaid award for damages to said premises
by reason of change of grade of any street (all of the foregoing is hereinafter
collectively called the "Premises"); and Seller will execute and deliver to
Purchaser, on the delivery of the Deed (hereinafter defined) and consummation of
the transaction contemplated hereby (the "Closing"), or, at Purchaser's option,
thereafter, on demand, all proper instruments for the conveyance of such title
and the assignment and collection of any such award.
2. Purchase Price.
A. The purchase price for the Premises (the "Purchase
Price") is the amount determined pursuant to Article 33 of the Lease, and is
payable as follows:
(a) _________________________ and no/100
($___________) Dollars (the "Downpayment") by check, payable to the attorney
designated by Seller as Escrow Agent (the "Agent") simultaneously with the
execution and delivery of this Agreement; and
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(b) the balance by certified or official bank
check or checks payable to the order of Seller on the delivery of the Deed.
B. The Downpayment shall be held by the Agent in
accordance with the provisions of Section 18 of this Agreement.
3. Sale of the Premises and Acceptable Title.
The Premises shall be conveyed subject only to (a) the Lease
and any subtenancies created by the Tenant thereunder; (b) the matters set forth
in Exhibit "B" annexed hereto and made a part hereof; and (c) such other matters
as are approved in writing by Purchaser (such items as are listed in Exhibit B
and other matters being hereinafter collectively referred to as the "Permitted
Exceptions").
4. Closing Date.
The Closing shall take place at the office of Purchaser's
attorney at ___________ _____________________________ at 10:00 A.M. on
________________, ____ [the date that is 90 days following the date hereof, or
if that date is not a business day then the first business day thereafter] (the
actual date of the Closing being herein referred to as the "Closing Date").
5. Violations.
All violations of law or ordinances, orders or requirements
noted in or issued by any federal, state, county or municipal authorities having
jurisdiction against or affecting the Premises on the Closing Date, which,
pursuant to the Lease, are the Landlord's obligation to comply with or cure,
shall be complied with by Seller, at its sole cost and expense, by the Closing
Date, and this provision of the Agreement shall survive the Closing. All liens
which are not Permitted Exceptions and which have attached to the Premises prior
to the Closing, shall be removed or complied with by Seller, at its sole cost
and expense. Seller shall furnish Purchaser with an authorization to make the
necessary violation searches and Purchaser and its authorized representatives
shall have the right to enter upon and inspect the Premises from time to time on
and before the Closing Date.
6. Personalty.
All fixtures and articles of personal property attached or
appurtenant to or used in connection with the Premises (other than those
belonging to tenants of the Premises) are represented to be owned by the Seller
and free of any liens, encumbrances and adverse claims, and are included in this
sale.
7. Documents to be Delivered by Seller at Closing.
A. At the Closing, Seller shall deliver to Purchaser a
good and sufficient bargain and sale with covenants against grantor's acts deed
(the "Deed"), containing all customary covenants, so as to convey to Purchaser
good, marketable and insurable fee simple absolute title to the Premises,
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free of all liens and encumbrances other than the Permitted Exceptions, and
shall contain the covenant required by subdivision 5 of Section 13, of the Lien
Law.
B. At the Closing, the Seller also shall deliver to the
Purchaser an assignment (the "Assignment") of the Lease (including, without
limitation, any subleases previously assigned to the Landlord thereunder),
collateral guarantees and all security deposits made thereunder, containing a
covenant of good title and the Seller's representation and warranty that there
have been no prior assignments of the Lease.
C. The Deed and the Assignment each shall be in
recordable form and duly executed and acknowledged. The Deed shall have affixed
thereto any requisite surtax and documentary tax stamps, in proper amount,
affixed by Seller, at Seller's sole cost and expense. At the Closing, Seller
shall deliver to Purchaser its certified check(s), to the order of the
appropriate tax collecting agency or official, in the amount of all transfer
taxes and other taxes and charges in connection with the sale and transfer of
the Premises by Seller to Purchaser and the recording of the Deed.
D. At the Closing, the Seller shall deliver to the
Purchaser a bill of sale (the "Bill of Sale") conveying, transferring and
selling to the Purchaser all right, title and interest of the Seller in and to
all personal property, building equipment and maintenance equipment which are
owned by the Seller and being sold to the Purchaser. The Bill of Sale shall
contain a warranty that such property is free and clear of all liens,
encumbrances, security interests and adverse claims. It is agreed that the value
of such property does not exceed One Thousand ($1,000.00) Dollars; that the
Purchaser shall prepare any required sales tax return; that said return shall be
executed by the Seller at the Closing; and that the Seller shall file same and
pay the sales tax due thereon promptly after the Closing Date.
E. A draft of the Deed, the Assignment and the Bill of
Sale, and a proposed schedule of apportionments shall be delivered by Seller to
Purchaser's attorneys for review and approval at least ten (10) business days
prior to the Closing Date.
F. If Seller is a corporation, Seller shall deliver to
Purchaser at the Closing a sworn certificate by the secretary of Seller
certifying that the Board of Directors and Shareholders of Seller have adopted
resolutions authorizing the sale of the Premises pursuant to this Agreement and
delivery of the Deed, Assignment and Bill of Sale and all other documents
delivered to Purchaser, and setting forth such additional facts, if any, needed
to show that the conveyance is in conformity with applicable law.
G. At the Closing, Seller shall deliver to Purchaser
checks to the order of the appropriate officers in payment of all applicable
realty transfer fees and real property and/or documentary transfer taxes and
copies of any required tax returns therefor executed by Seller, which checks
shall be certified or official bank checks if required by the taxing authority,
unless Seller elects to have Purchaser pay any of such taxes and credit
Purchaser with the amount thereof.
H. At the Closing, Seller shall deliver possession of
the Premises.
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I. At the Closing, Seller shall deliver to Purchaser,
such affidavits as Purchaser's title insurance company shall require in order to
omit from its title insurance policy exceptions for judgments, bankruptcies or
other returns against persons or entities whose names are the same as or similar
to Seller's name.
J. At the Closing, Seller shall deliver to Purchaser an
affidavit stating, under penalty of perjury, Seller's United States taxpayer
identification number and that Seller is not a "foreign person" as defined in
Section 1445(f)(3) of the Internal Revenue Code of 1986, as amended, and
otherwise in the form prescribed by the Internal Revenue Service.
K. At the Closing, Seller shall deliver any affidavits,
statements, certifications or other documents which are required by the laws and
regulations of the state and local governmental authorities in which the Land is
located, to be delivered by sellers of real estate, and shall also deliver all
other documents it is required to deliver pursuant to the provisions of this
Agreement.
8. Apportionments.
A. The following are to be apportioned between the
parties as of and on the Closing Date:
(a) real estate taxes, and water and sewer
charges, if any, on the basis of the fiscal year for which the same have been
assessed.
(b) prepaid rents and additional rents under the
Lease.
B. If the Closing Date shall occur before the new real
estate tax rate is fixed, the apportionment of taxes shall be upon the basis of
the tax rate for the preceding year applied to the latest assessed valuation.
Promptly after the new real estate tax rate is fixed the apportionment of real
estate taxes shall be recomputed. Any discrepancy resulting from such
recomputation shall be promptly corrected and the proper party reimbursed, which
obligation shall survive the Closing.
C. The amount of any unpaid taxes or assessments, which
Seller is obligated to pay and discharge, with interest and penalties thereon to
the tenth (10th) business day after the Closing Date, may at the option of
Seller be allowed to Purchaser out of the balance of the Purchase Price,
provided official bills therefor with interest and penalties thereon are
furnished by Seller at the Closing, and provided further that Purchaser's title
insurance company will insure Purchaser against collection of said items.
9. Title Insurance.
A. Within ten (10) days after the date of this
Agreement, Purchaser shall order a title insurance search and commitment for an
owner's title insurance policy (ALTA Owner's Policy - 4/6/90 form) from First
American Title Insurance Company or any other reputable title insurance
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company permitted to do business in the state in which the Premises are located
(the "Purchasers title insurance company"), setting forth the status of title to
the Premises and any defects in or objections or exceptions to title, together
with true and correct copies of all instruments giving rise to such defects,
objections or exceptions. Purchaser shall promptly forward a copy of such
commitment to Seller upon receipt. If any defects, objections or exceptions in
title appear in such commitment (other than the Permitted Exceptions, standard
printed exceptions, and any other exceptions that will be removed on the payment
by Seller of an additional premium or the submission by Seller of appropriate
affidavits or documentary evidence) which are unacceptable to Purchaser and
which Purchaser is not required to accept under the terms of this Agreement,
Seller shall forthwith undertake, with due diligence, to eliminate such
unacceptable defects, objections or exceptions. Upon approval of Purchaser,
Seller may adjourn the Closing for thirty (30) business days in which to
eliminate such unacceptable defects, objections or exceptions. If Seller is
unable to eliminate such unacceptable defects, objections or exceptions and
convey title in accordance with the terms of this Agreement on or before the
Closing Date, as the same may have been extended, Seller shall so notify
Purchaser and Purchaser may thereafter (a) terminate this Agreement by notice
given to Seller, in which event the provisions of subsection A of Section 10
hereof shall apply; or (b) elect to accept title subject to such unacceptable
defects, objections or exceptions and receive a credit against the Purchase
Price in an amount equal to the cost of removing the same.
B. If any instruments or affidavits are required by
Purchaser's title insurance company in order to eliminate a defect in or
objection or exception to title, the following shall apply:
(a) all such instruments and affidavits shall be
in such form and shall contain such terms and conditions as may be required by
such title insurance company to satisfy said company sufficiently for it to omit
any defect in or objection or exception to title; and
(b) Seller agrees to execute, acknowledge and
deliver any such instrument and affidavit.
C. If a search of the title discloses judgments,
bankruptcies or other returns against other persons having names the same as or
similar to that of Seller, Seller, on request, shall deliver to Purchaser
affidavits showing that such judgments, bankruptcies or other returns are not
against Seller. Seller also shall deliver any affidavits and documentary
evidence required by Purchaser's title insurance company to eliminate defects,
objections or exceptions appearing in its title search and commitment.
10. Seller's Ability to Convey Title.
A. Subject to Seller's obligations under subsection B of
this Section 10, if Seller is unable to convey title in accordance with the
terms of this Agreement and Purchaser elects to terminate this Agreement, the
Downpayment shall be refunded to Purchaser, with all interest earned thereon,
and Seller shall pay the cost of any title search made, and any survey obtained
and of any insurance commitment issued, by Purchaser's title insurance company
in connection with this Agreement or the Option and any expenses, including but
not limited to reasonable attorneys' fees and disbursements, incurred by
Purchaser in connection with the sale and purchase of the Premises. Upon
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such refund and payment, this Agreement shall terminate and neither party to
this Agreement shall have any further rights or obligations hereunder other than
any arising under Section 15 hereof.
B. Seller shall eliminate any unpaid taxes, water
charges, sewer rents, assessments, liens and encumbrances together with interest
thereon, affecting the Premises, excepting those which are the Tenant's
obligation under the Lease to pay or discharge, which may be removed or
satisfied by the payment of a liquidated sum of money, and Seller shall not be
deemed unable to convey title in accordance with the terms of this Agreement if
it shall fail or refuse to eliminate any such liens or encumbrances.
Notwithstanding the foregoing, however, Seller may, in lieu of satisfying such
liens or encumbrances, deposit with Purchaser's title insurance company such
amount of money as may be determined by said company as being sufficient to
induce it to insure Purchaser against collection of such liens, unpaid taxes,
water charges, sewer rents, assessments, and/or encumbrances, including interest
and penalties, against the Premises, in which event such liens and encumbrances
shall not be objections to title.
11. Seller's Remedies.
If Seller shall be in compliance with all its obligations
hereunder and shall tender the Deed, Assignment and Bill of Sale and any other
instruments required by this Agreement in full compliance with its obligations
hereunder and Purchaser shall fail or refuse to close title as required by the
terms of this Agreement, or if Purchaser otherwise defaults hereunder so that
Seller has the right to refuse to close title, then Seller's sole remedy shall
be to retain the Downpayment with any interest earned thereon, as liquidated
damages, it being agreed that Seller's damages are difficult if not impossible
to ascertain, and thereupon neither party to this Agreement shall have any
further rights or obligations hereunder.
12. Seller's Representations.
Seller represents, warrants and agrees that:
(a) Seller owns legal and beneficial title to
the Premises, free and clear of all liens and encumbrances except for the
Permitted Exceptions; and
(b) Seller is not a "foreign person", as that
term is defined for purposes of the Foreign Investment in Real Property Tax Act,
Internal Revenue Code ("IRC") Section 1445, as amended, and the regulations
promulgated thereunder (collectively "FIRPTA").
13. Purchaser's Waiver.
Purchaser may waive compliance by Seller with respect to any
of Seller's representations, warranties and agreements set forth in this
Agreement.
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14. Notices.
Any notice or demand required or permitted to be given or
made hereunder to or upon either party hereto shall be deemed to have been duly
given or made for all purposes if (a) in writing and sent by (i) messenger or an
overnight courier service against receipt, or (ii) certified or registered mail,
postage paid, return receipt requested, or (b) sent by telegram, telecopy, telex
or similar electronic means, provided that a written copy thereof is sent on the
same day by postage paid first-class mail, to such party at the following
address:
To Seller at: to the addresses and persons provided in the Lease, to
which notices are to be sent.
To Purchaser at: to the addresses and persons provided in the Lease, to
which notices are to be sent.
or such other address as either party hereto may at any time, or from time to
time, direct by notice given to the other party in accordance with this Section.
The date of giving or making of any such notice or demand shall be, in the case
of clause (a)(i), the date of the receipt; in the case of clause (a)(ii), three
business days after such notice or demand is sent; and, in the case of clause
(b), the business day next following the date such notice or demand is sent.
15. Broker.
Each of the parties hereto agrees that it has not dealt with
any broker in connection with this transaction. The parties acknowledge that
this Agreement was brought about by direct negotiation between Seller and
Purchaser and that neither Seller nor Purchaser know of anyone entitled to a
commission in connection with this transaction. Seller and Purchaser shall
indemnify and defend each other against any and all claims, demands, costs,
expenses or causes of actions arising out of a breach of the agreements
contained in this Section 15. The representations, warranties and indemnities
contained in this Section 15 shall survive the Closing, or if the Closing does
not occur, the termination of this Agreement.
16. Condemnation.
If, prior to the Closing Date, all or any portion of the
Premises is taken by eminent domain or condemnation (or is the subject of a
pending or contemplated taking which has not been consummated), Seller shall
notify Purchaser of such fact and Purchaser shall have the option to terminate
this Agreement upon notice to Seller given not later than fifteen (15) days
after receipt of Seller's notice. If this Agreement is terminated, as aforesaid,
the Downpayment shall be refunded to Purchaser, with all interest earned
thereon, and Seller shall pay the cost of any survey obtained and of any title
search made, and any insurance commitment issued by Purchaser's title insurance
company in connection with this Agreement. Upon such refund and payment neither
party shall have any further rights or obligations hereunder other than any
arising under Section 15 hereof. If Purchaser does not exercise this option to
terminate this Agreement, there shall be a fair and equitable adjustment of the
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Purchase Price or, at the option of Purchaser, in lieu of such adjustment,
Seller shall assign and turn over, and Purchaser shall be entitled to receive
and keep, all awards or other proceeds for the taking by eminent domain or
condemnation.
17. Liens.
Purchaser shall have a lien against the Premises for the
amount of the Downpayment, the aforesaid title insurance company expenses, any
cost of making and/or updating the survey and any other expenses, including,
without limitation reasonable attorneys' fees and disbursements, incurred by
Purchaser.
18. Escrow.
The Downpayment shall be held by the Agent, in trust, on the
terms hereinafter set forth:
(a) The Agent shall deposit the Downpayment
(hereinafter referred to as the "Deposit") in a special interest-bearing
commercial bank account in the City and State of New York, shall not commingle
the Deposit with any funds of the Agent or others and shall promptly advise
Purchaser of the name and location of the bank in which the deposit is made and
the number of the bank account.
(b) If the Closing takes place under this
Agreement, the Agent shall deliver the Deposit and all interest earned thereon
to, or upon the instructions of, Seller on the Closing Date.
(c) If Purchaser has defaulted under this
Agreement and has failed to close title in accordance with the terms of this
Agreement, and Seller is not then in default under this Agreement, and Seller
terminates this Agreement in accordance with the terms hereof, the Agent shall
pay the Deposit and all interest earned thereon to Seller in accordance with the
provisions thereof.
(d) If the Closing does not take place under
this Agreement for any reason other than that described in 18(c) above, the
Agent shall pay the Deposit (and all interest earned thereon) to Purchaser.
(e) It is agreed that the duties of the Agent
are only as herein specifically provided, and subject to the provisions of
subparagraph (d) hereof, are purely ministerial in nature, and that the Agent
shall incur no liability whatsoever except for willful misconduct or gross
negligence, as long as the Agent has acted in good faith. Seller and Purchaser
each release the Agent from any act done or omitted to be done by the Agent in
good faith in the performance of its duties hereunder. Seller and Purchaser
hereby indemnify and agree to hold the Agent harmless from and against any and
all losses, damages, costs or expenses the Agent may incur unless caused by its
willful misconduct or gross negligence.
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(f) The Agent is acting as a stakeholder only
and without compensation with respect to the Deposit and the interest earned
thereon. If for any reason the Closing does not occur and either party makes a
written demand upon the Agent for payment of the Deposit and the interest earned
thereon, or if there is any dispute as to whether the Agent is obligated to
deliver the Deposit and the interest earned thereon, the Agent shall give
written notice to the other party of such demand. If the Agent does not receive
a written objection from the other party to the proposed payment within ten (10)
business days after the giving of such notice, the Agent is hereby authorized to
make such payment. If the Agent does receive such written objection within such
ten (10) day period or if for any other reason the Agent in good faith shall
elect not to make such payment, the Agent shall continue to hold such amount
until otherwise directed by written instructions from the parties to this
Agreement or a final judgment of a court. However, the Agent shall have the
right at any time to deposit the escrowed proceeds and interest thereon, if any,
with the Clerk of a Court of competent jurisdiction of the County in which the
Premises are located. The Agent shall give written notice of such deposit to
Seller and Purchaser. Upon such deposit the Agent shall be relieved and
discharged of all further obligations and responsibilities hereunder.
(g) The Agent has executed this Agreement in
order to confirm that the Agent is holding and will hold the Downpayment and
interest, in escrow, pursuant to the provisions hereof.
19. Expenses.
(a) At the Closing, Seller shall deliver a
certified or official bank check to the order of the recording officer of the
county in which the Deed is to be recorded for the amount of the documentary
stamps to be affixed thereto in accordance with Article 31 of the Tax Law of the
State of New York. At Seller's option, Purchaser shall pay all of the same and
shall receive a credit for such amount on account of the portion of the Purchase
Price due at Closing.
(b) [OMITTED]
(c) Seller and Purchaser shall both execute and
deliver to each other and the Purchaser's title insurance company on or before
the Closing all affidavits, statements and returns required to be delivered with
respect to this transaction pursuant to Articles 31 and 31-B of the New York
State Tax Law and will comply in a timely manner with all provisions of said
Articles in such manner as to prevent any delay in the closing of title. Seller
and Purchaser each hereby agrees to defend and indemnify the other from all
costs and liabilities (including reasonable attorney's fees) for failure to make
the foregoing payments required pursuant to this Article at or following
Closing. Such obligation and indemnity shall survive the Closing and the
delivery of the Deed.
(d) (i) Purchaser shall duly complete,
execute, and attest the "transferee" form for this transaction promulgated by
the New York State Commissioner of Taxation and Finance, pursuant to Article
3lB, Section 1447 of the New York State Tax Law (the "Tax Law"), and shall
deliver same to Seller's attorneys, not later than five (5) days following the
date of this Agreement. Seller shall duly complete, execute, and attest the
"transferor" form so promulgated and
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shall cause such transferee and transferor forms to be appropriately filed with
the State Tax Commission, pursuant to Section 1447(e) of the Tax Law, not later
than twenty-one (21) days prior to the Closing Date set forth herein.
(ii) At Seller's expense, Purchaser
agrees to fully cooperate with Seller and the Tax Commission in the
determination of the tax, if any, payable pursuant to Article 3lB of the Tax Law
(the "Gains Tax").
(iii) Seller shall be solely
responsible to pay the Gains Tax, if any, on the conveyance of the Premises to
Purchaser and to file, prior to, at or following Closing, any tax returns and
reports Seller is required to file in connection therewith. Seller hereby agrees
to defend and indemnify Purchaser (including reasonable attorney's fees) against
payment by Purchaser of any Gains Tax, interest or penalties payable by Seller
pursuant to this Agreement. Seller shall have the right to pay any Gains Tax
under protest.
(iv) Seller shall deliver to Purchaser
or his designee at the closing a statement of tentative assessment of the amount
of tax or a statement that no tax is due pursuant to Section 1447(2) of the Tax
Law (either such statement being herein called an "Assessment Statement").
(v) Seller shall pay in full at
Closing any tax shown to be due on any Assessment Statement. Purchaser, if
Seller complies with the foregoing, shall transfer to Seller at Closing the full
consideration due under this Agreement without any offset or payment to the
State for the Gains Tax due. Notwithstanding the foregoing, on request of Seller
within a reasonable time prior to Closing, Purchaser shall furnish Seller, from
the amount of the Purchase Price due Seller at Closing, a certified check
payable as Seller may direct to facilitate payment of the Gains Tax.
(vi) Seller reserves the right,
following the Closing, to apply for a refund of any Gains Tax paid. Any such
refund if obtained shall belong solely to Seller.
(vii) The provisions of this clause (d)
shall survive the Closing and delivery of the Deed.
20. Documents to be Delivered by Purchaser at Closing.
At the Closing, Purchaser shall:
(a) deliver to Seller checks in payment of the
portion of the Purchase Price payable at the Closing, as adjusted for
apportionments under Section 8; and
(b) deliver any other documents required by
this Agreement to be delivered by Purchaser.
21. Limit of Liability.
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Seller agrees that neither the directors, officers, employees,
shareholders, nor any agents of Purchaser have any personal obligations
hereunder, and that Seller shall not seek to assert any claim or enforce any of
its rights hereunder against such directors, officers, employees, shareholders
or agents of Purchaser or against any other person, partnership, corporation or
trust, as principal of Purchaser, whether disclosed or undisclosed.
22. Purchaser's Remedies.
If Seller fails to comply with any of the provisions of this
Agreement then, in addition to all other legal remedies available to Purchaser
by reason of Seller's default, Purchaser shall have the right to obtain specific
performance of Seller's obligations hereunder.
23. Entire Agreement.
This Agreement, including all of the exhibits attached hereto,
constitutes the entire agreement between the parties with respect to the subject
matter hereof, and all prior understandings, representations, statements (oral
or written), and agreements heretofore or simultaneously had between the parties
are merged in and are contained in this Agreement.
24. Assignment.
This Agreement may not be assigned by Purchaser.
25. Expense of Litigation.
If either party incurs any expense, including reasonable
attorneys' fees, in connection with any action or proceeding instituted by
either party by reason of any default or alleged default of the other party
hereunder, the party prevailing in such action or proceeding shall be entitled
to recover its said reasonable expenses from the other party.
26. Miscellaneous.
A. This Agreement may not be changed, modified or
terminated, except by an instrument executed by the parties hereto who are or
will be affected by the terms of such instrument.
B. No waiver by either party of any failure or refusal
to comply with its obligations shall be deemed a waiver of any other or
subsequent failure or refusal to so comply.
C. This Agreement and the terms and provisions hereof
shall inure to the benefit of, and shall bind, the heirs, executors,
administrators, successors and assigns of the respective parties.
D. If any term or provision of this Agreement or the
application thereof to any person or circumstance shall, to any extent, be
invalid or unenforceable, the remainder of this
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Agreement, or the application of such term or provision to persons or
circumstances other than those as to which it is held invalid or unenforceable,
shall not be affected thereby, and each term and provision of this Agreement
shall be valid and be enforced to the fullest extent permitted by law.
E. This Agreement shall be construed and enforced in
accordance with the laws of the state in which the Premises are located.
F. All words or terms in this Agreement, regardless of
the number or gender in which they are used, shall be deemed to include any
other number or gender as the context may require.
[END OF PAGE]
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G. Captions in this Agreement are inserted for
convenience of reference only and do not define, describe or limit the scope or
the intent of this Agreement or any of the terms hereof, and shall not be
considered in interpreting or construing this Agreement.
IN WITNESS WHEREOF, this Agreement has been duly executed by
the parties hereto as of the day and year first above written.
SELLER
By:______________________________
Name:
Title:
PURCHASER
By:____________________________
Name:
Title:
The undersigned hereby acknowledges receipt of the Downpayment of $20,000.00 by
check, subject to collection, to be held in escrow, pursuant to Section 18 of
this Agreement.
_________________________ Agent
By:______________________
Name:
Title:
Address of Agent:
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LIST OF EXHIBITS
Exhibit
A Description
B Permitted Exceptions
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EXHIBIT "A"
Description
ALL that certain plot, piece or parcel of land with the buildings and
improvements thereon erected, situate, lying and being near Farmingdale, Town of
Oyster Bay, County of Nassau and State of New York, more particularly bounded
and described as follows:
BEGINNING at a point on the Easterly side of Seaford Oyster Bay Expressway, said
point being the dividing line of the premises about to be described and Land now
or formerly of Cascelta Corporation said point is also distant 935.7 more or
less southerly from the extreme southerly end of the arc of a curve connecting
the southerly side of Central Avenue and the easterly side of Seaford Oyster Bay
Expressway;
RUNNING THENCE South 79 degrees 09 minutes 28 seconds East 894.81 feet, which
point is also distant 500.63 feet southerly from land of Long Island Railroad;
THENCE South 03 degrees 43 minutes 22 seconds West 552 feet;
THENCE North 79 degrees 09 minutes 28 seconds West 981.25 feet to the easterly
side of Seaford Oyster Bay Expressway;
RUNNING THENCE North 12 degrees 43 minutes 38 seconds East along the easterly
side of Seaford Oyster Bay Expressway 548.04 feet to the point or place of
BEGINNING.
-15-
<PAGE>
<PAGE>
EXHIBIT "B"
Permitted Exceptions
Purchaser shall take title to the Premises subject to:
1. Present and future laws, ordinances, codes,
resolutions, requirements, orders and regulations of all municipal, county,
state or federal governments having jurisdiction over the Premises and the use
of improvements thereof, including without limitation, if applicable, rights of
governmental authorities to require the removal of any vaults, vault spaces,
areas, chutes or other spaces or projections beyond the building lines or of any
curb cut.
2. Encroachments and/or projections of stoops, stoop
areas, cellar steps, window trims, vent pipes, cellar doors, steps, columns and
column bases, flue pipes, signs, piers, lin tels, window sills, fire escapes,
ledges, fences, coping, trim and cornices, if any, upon, under or above any
street or highway, the Premises or any adjoining premises.
3. The rights, if any, of any utility company to
maintain lines, pipes, wires, cables, poles and distribution boxes and equipment
in, under, over and upon the Premises.
4. Any state of facts in addition to or subsequent to
the state of facts disclosed by the Survey (hereinafter defined), which an
accurate survey of the Premises would disclose provided the same does not render
title unmarketable.
5. Such physical condition of the Premises and of the
appurtenances, fixtures, equipment and personal property included in this sale
as a physical inspection thereof will disclose.
6. The Lease.
7. Any liens, encumbrance, charge or other matter
(including without limitation, violations of federal, state or municipal laws,
ordinances or requirements), which the Tenant under the Lease is by the terms of
the Lease or by law required to discharge, remove or comply with.
8. Covenants, restrictions, reservations, easements and
agreements of record at the time of the execution of the Lease.
9. All notices of violations of law or municipal
ordinances, orders or requirements noted in or issued by the Department of
Housing and Buildings, Air Resources, Transportation, Fire, Labor, Health, or
other state or municipal departments having jurisdiction against
-16-
<PAGE>
<PAGE>
or affecting the Premises, whether heretofore or hereafter issued or noted and
all conditions which may now or hereafter constitute a violation regardless of
whether same have been noted by any such department.
10. Any financing statements or chattel mortgages
entered into by, or arising from, the acts of any tenant of the Premises, any
financing statements filed on a day more than five years prior to closing and
any financing statements or chattel mortgages filed against property no longer
on the Premises;
11. Such state of facts as are shown by a survey
prepared by Barrett, Bonacci, Hyman & Van Wheele and last dated May 9, 1994 (the
"Survey").
12. The liens of real estate taxes, water meter
charges, water frontage charges, sewer taxes, rent and charges.
13. Electric Easement in Liber 5993, p. 245.
-17-
<PAGE>
<PAGE>
EXHIBIT E
(Letter Agreements with holders of Existing Fee Mortgages)
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<PAGE>
<PAGE>
EXHIBIT E
(Letter Agreements with holders of Existing Fee Mortgages)
-61-
<PAGE>
<PAGE>
U.S. Small Business Administration
26 Federal Plaza
New York, New York 10278
June __, 1996
BDC Realty Corp.
175 Central Avenue South
Bethpage, New York 11714
Re: Lease dated June ____, 1996 between
BDC Realty Corp. and Sleepy's Inc. (the "Lease")
Gentlemen:
Reference is made to Section 17.03(b) of the above-captioned
Lease (a copy of which Section is annexed hereto and made a part hereof). All
capitalized terms used herein and not defined shall have the respective meanings
ascribed to them in Section 17.03 of the Lease.
This letter is to set forth the agreement between the U.S.
Small Business Administration (the "SBA") and BDC Realty Corp. (the "Borrower")
with respect to the circumstances under which the SBA may exercise its right
under Section 17.03(b) of the Lease to direct the tenant under the Lease (the
"Tenant") to make Designated SBA Payments to the SBA and the respective rights
and obligations of the SBA and the Borrower with respect to the Designated SBA
Payments.
1. In the event that the Borrower has defaulted in making a monthly
payment due with respect to the SBA Note or any payment due under the
SBA Mortgage and such default has continued beyond the applicable
notice and cure period and remains uncured, then the SBA, at its
option, may elect to notify Tenant, pursuant to Section 17.03(b) of the
Lease, to make the monthly Designated SBA Payment to the SBA.
Otherwise, the SBA shall have no right to collect any such payments
from Tenant.
2. The amount of the monthly Designated SBA Payment which the SBA may
collect from Tenant after the occurrence of the events described in the
foregoing Paragraph 1, shall be equal to $___________.
3. The SBA shall simultaneously send to the Borrower, in accordance with
the notice provisions of the SBA Mortgage, a copy of any notice sent to
Tenant pursuant to this letter agreement and/or Section 17.03(b) of the
Lease. Upon the Borrower's receipt of a copy of the SBA's initial
letter to Tenant directing Tenant to make the Designated SBA Payments
to the SBA, the Borrower, except as otherwise provided in paragraph 6
hereof, shall not pay any further monthly installments of principal and
interest due under the SBA
<PAGE>
<PAGE>
Note to the SBA, unless and until the Borrower receives a copy of the
SBA's notice to Tenant directing Tenant to cease making the Designated
SBA Payments to the SBA.
4. Any Designated SBA Payment which the SBA receives from Tenant shall be
on account of the debt evidenced by the SBA Note and shall be applied
in accordance with the applicable terms thereof and of the SBA
Mortgage.
5. If Tenant fails to timely pay any Designated SBA Payment which it is
required to pay to the SBA, the SBA shall, within ten (10) business
days following such failure, notify the Borrower thereof and the
Borrower shall have the opportunity to cure any such default. All
notice and grace periods under the SBA Note and/or the SBA Mortgage
applicable to each such defaulted payment shall be extended by the
number of days which elapse from the due date of such defaulted payment
until the date that the SBA gives to the Borrower the notice required
by this sentence. The provisions of this Paragraph 5 shall not affect
any other rights to notice which the Borrower has under the SBA Note,
the SBA Mortgage and/or any other documents or instruments related
thereto.
6. At such time as the debt evidenced by the SBA Note and all sums due to
the SBA under the SBA Mortgage have been paid in full, the SBA shall
promptly send a notice to Tenant directing it to cease making
Designated SBA Payments to the SBA and to make all future payments due
under the Lease directly to the landlord thereunder. Any payments which
the SBA receives from Tenant after the debt evidenced by the SBA Note
has been paid in full shall be promptly paid by the SBA to the
Borrower.
7. Prior to such time as the debt evidenced by the SBA Note and all sums
due to the SBA under the SBA Mortgage have been paid in full, the SBA,
in its sole and absolute discretion, may direct Tenant to cease making
Designated SBA Payments to the SBA and to make all future payments due
under the Lease directly to the landlord thereunder.
8. The terms and conditions of this letter agreement shall be binding
upon, and inure to the benefit of, the SBA and the Borrower and their
respective successors and assigns.
Very truly yours,
U.S. SMALL BUSINESS ADMINISTRATION
By:________________________________
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<PAGE>
<PAGE>
Fleet Bank
100 Jericho Quadrangle
Jericho, New York 11753-1004
June __, 1996
BDC Realty Corp.
175 Central Avenue South
Bethpage, New York 11714
Re: Lease dated June ____, 1996 between
BDC Realty Corp. and Sleepy's Inc. (the "Lease")
Gentlemen:
Reference is made to Section 17.03(a) of the above-captioned
Lease (a copy of which Section is annexed hereto and made a part hereof). All
capitalized terms used herein and not defined shall have the respective meanings
ascribed to them in Section 17.03(a) of the Lease.
This letter is to set forth the agreement between Fleet Bank
(the "Bank") and BDC Realty Corp. (the "Borrower") with respect to the
circumstances under which the Bank may exercise its right under Section 17.03(a)
of the Lease to direct the tenant under the Lease (the "Tenant") to make
Designated Fleet Payments to the Bank and the respective rights and obligations
of the Bank and the Borrower with respect to the Designated Fleet Payments.
1. In the event that the Borrower has defaulted in making a monthly
payment due with respect to any of the Fleet Notes or any payment due
under the Fleet Mortgage and such default has continued beyond the
applicable notice and cure period and remains uncured, then the Bank,
at its option, may elect to notify Tenant, pursuant to Section 17.03(a)
of the Lease, to make the monthly Designated Fleet Payment to the Bank.
Otherwise, the Bank shall have no right to collect any such payments
from Tenant.
2. The amount of the monthly Designated Fleet Payment which the Bank may
collect from Tenant after the occurrence of the events described in the
foregoing Paragraph 1, shall be equal to the lesser of (i) the
aggregate amount of the monthly installments of principal and interest
then due under all of the Fleet Notes and the sums due to the Fleet
Mortgagee under the Fleet Mortgage and (ii) the then monthly
installment of Rent due under the Lease. If at any time after the Bank
has exercised its right to collect the monthly Designated Fleet Payment
from Tenant, the aggregate amount of the monthly installment of
principal and interest due under the Fleet Notes changes, then the Bank
shall within ten (10) business days of the Bank thereafter notify
Tenant of the changed amount of the monthly Designated Fleet Payment.
In the event that Tenant, at any time, has paid more than it is
required to pay with respect to the Designated Fleet Payments (either
because the Bank has failed to promptly notify Tenant of a change in
the amount of the required
<PAGE>
<PAGE>
monthly Designated Fleet Payment or otherwise), the Bank promptly shall
either credit such overpayment against the next due Designated Fleet
Payments or refund the overpayment to the Borrower and shall promptly
notify Tenant of such credit or refund.
3. The Bank shall simultaneously send to the Borrower, in accordance with
the notice provisions of the Fleet Mortgages, a copy of any notice sent
to Tenant pursuant to this letter agreement and/or Section 17.03(a) of
the Lease. Upon the Borrower's receipt of a copy of the Bank's initial
letter to Tenant directing Tenant to make the Designated Fleet Payments
to the Bank, the Borrower, except as otherwise provided in paragraph 6
hereof, shall not pay any further monthly installments of principal and
interest due under the Fleet Notes to the Bank, unless and until the
Borrower receives a copy of the Bank's notice to Tenant directing
Tenant to cease making the Designated Fleet Payments to the Bank.
4. Any Designated Fleet Payment which the Bank receives from Tenant shall
be on account of the debt evidenced by the Fleet Notes and shall be
applied in accordance with the applicable terms thereof and of the
Fleet Mortgages.
5. If Tenant fails to timely pay any Designated Fleet Payment which it is
required to pay to the Bank, the Bank shall, within ten (10) business
days of the Bank following such failure, notify the Borrower thereof
and the Borrower shall have the opportunity to cure any such default.
All notice and grace periods under the Fleet Notes and/or the Fleet
Mortgage applicable to each such defaulted payment shall be extended by
the number of days which elapse from the due date of such defaulted
payment until the date that the Bank gives to the Borrower the notice
required by this sentence. The provisions of this Paragraph 5 shall not
affect any other rights to notice which the Borrower has under the
Fleet Notes, the Fleet Mortgage and/or any other documents or
instruments related thereto.
6. At such time as the debt evidenced by the Fleet Notes and all sums due
to the Bank under the Fleet Mortgage have been paid in full, the Bank
shall promptly send a notice to Tenant directing it to cease making
Designated Fleet Payments to the Bank and to make all future payments
due under the Lease directly to the landlord thereunder. Any payments
which the Bank receives from Tenant after the debt evidenced by the
Fleet Notes has been paid in full shall be promptly paid by the Bank to
the Borrower.
7. Prior to such time as the debt evidenced by the Fleet Notes and all
sums due to the Bank under the Fleet Mortgage have been paid in full,
the Bank, in its sole and absolute discretion, may direct Tenant to
cease making Designated Fleet Payments to the Bank and to make all
future payments due under the Lease directly to the landlord
thereunder.
8. The terms and conditions of this letter agreement shall be binding
upon, and inure to the benefit of, the Bank and the Borrower and their
respective successors and assigns.
Very truly yours,
FLEET BANK
By:______________________________
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<PAGE>
<PAGE>
INDEMNIFICATION AGREEMENT
INDEMNIFICATION AGREEMENT (this "Agreement"), dated as of
[_____], 1996,* by and between HARRY ACKER, an individual residing at 61 Bay
Colony Drive, Fort Lauderdale, Florida (the "Indemnitor"), and SLEEPY'S, INC.,
a New York corporation (the "Company" or the "Indemnitee").
R E C I T A L S
WHEREAS, the Indemnitee proposes to sell in a public offering
(the "Public Offering") up to 1,581,250 shares of its common stock, par value
$0.01 per share (the "Common Stock"), and has engaged Gerard Klauer Mattison &
Co., LLC (the "Representative") as underwriter to effect the Public Offering
pursuant to an Underwriting Agreement dated as of [_____], 1996, among the
Indemnitee, the Indemnitor and the Representative (the "Underwriting
Agreement");
WHEREAS, prior to the closing of the Public Offering, the
Indemnitee will be wholly-owned by the Indemnitor;
WHEREAS, prior to the date hereof, Sid Patterson (the
"Plaintiff") filed lawsuits against the Indemnitee, the Indemnitor and another
individual, purportedly in the right of the Company, in the Supreme Court of the
State of New York, New York County, styled Sid Patterson v. M.J.R. Bedding Co.,
Inc., Bedding Discount Centers, Inc., Harold Acker and Jack Brown, Index No.
576/89 (the "M.J.R. Action") and Sid Patterson v. Hapat Bedding Corp., Bedding
Discount
- ----------
* The date of the Underwriting Agreement.
<PAGE>
<PAGE>
2
Centers, Inc., Harold Acker and Jack Brown, Index No. 8513/88 (the "Hapat
Action" and together with the M.J.R. Action, the "Actions");
WHEREAS, the Underwriting Agreement sets forth as a condition
precedent to the Representative's obligations thereunder that the Indemnitor
shall have entered into this Agreement to indemnify the Indemnitee against
certain obligations arising from the Actions, and any other action, including
appeals arising from the Actions, that hereafter may be brought against the
Indemnitee or the Indemnitor in respect of any of the matters relating to such
Actions ("Additional Actions", and together with the Actions, the "Claims"), on
the terms hereinafter set forth; and
WHEREAS, the Underwriting Agreement also sets forth as a
condition precedent to the Representative's obligations thereunder that,
concurrently with the execution of this Agreement and to secure the obligations
of the Indemnitor set forth in this Agreement, the Indemnitor shall have entered
into an escrow agreement in form acceptable to the Indemnitee and the
Representative (the "Escrow Agreement") and, pursuant thereto, shall deliver on
the date of the closing of the Public Offering to a financial institution
mutually acceptable to the Indemnitor, the Indemnitee and the Representative a
certified or official bank check, or cash by wire transfer of immediately
available funds, in the amount of $1,000,000.00 and an additional $500,000.00 in
cash or Common Stock (valued at the initial offering price per share) owned by
the Indemnitee, such amount to be held in an escrow account in accordance with
the terms of the Escrow Agreement.
<PAGE>
<PAGE>
3
NOW, THEREFORE, in consideration of the foregoing and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereby agree as follows:
1. Indemnification Obligation.
The Indemnitor hereby agrees to indemnify, defend and hold
harmless the Indemnitee and its successors and assigns from and against all
losses, claims, costs, liabilities, damages and expenses (including, without
limitation, any and all investigative, legal, expert witness, accounting and
other fees and disbursements incurred in connection with, and any amount paid in
settlement of, any action, suit or proceeding between the Indemnitee and the
Indemnitor or between the Indemnitee and any third party, or otherwise) (each, a
"Loss") incurred by or imposed upon the Indemnitee based on, arising out of or
otherwise in respect of the Claims; provided, however, that the Indemnitor shall
not be obligated to pay any amounts hereunder until the aggregate amount of
Losses (including legal fees and disbursements) exceeds $300,000.00 (the "Basket
Amount"), whereupon the Indemnitor shall be obligated to pay in full all such
amounts for such indemnification in excess of the Basket Amount. Any Loss
indemnifiable hereunder shall be reimbursed by the Indemnitor promptly as it is
incurred. The Indemnitor shall not, in connection with any proceeding or related
proceedings in the same jurisdiction, be liable for the fees, disbursements and
other charges of more than one separate firm of attorneys admitted to practice
in such jurisdiction at any one time for the Indemnitee.
<PAGE>
<PAGE>
4
2. Defense of Claims.
The Indemnitee hereby agrees to assume the defense of the
Claims. The Indemnitee shall have the right to settle the Claims without the
consent of Indemnitor; provided, however, that Indemnitee shall be required to
obtain such consent (which consent shall not be unreasonably withheld) if the
amount of the proposed settlement exceeds $300,000. The Indemnitor shall notify
the Indemnitee of any Additional Actions promptly upon receiving notice of the
same, and shall forward promptly to the Indemnitee any correspondence or
documents relating to such Additional Action. The Indemnitor has the right to
employ his own counsel, in addition to counsel employed by the Indemnitee, in
any defense of the Claims, but the fees, expenses and other charges of such
counsel will be at the expense of the Indemnitor.
3. Consent to Jurisdiction and Service of Process.
Any legal action, suit or proceeding arising out of or
relating to this Agreement may be instituted in any Federal court in the
Southern District of New York or any state court located in New York County,
State of New York, and each party agrees not to assert, by way of motion, as a
defense or otherwise, in any such action, suit or proceeding, any claim that it
is not subject personally to the jurisdiction of such court, that the action,
suit or proceeding is brought in an inconvenient forum, that the venue of the
action, suit or proceeding is improper or that this Agreement or the subject
matter hereof may not be enforced in or by such court. Each party further
irrevocably submits to the jurisdiction of such court in any
<PAGE>
<PAGE>
5
such action, suit or proceeding. Any and all service of process and any other
notice in any such action, suit or proceeding shall be effective against any
party if given personally or by registered or certified mail, return receipt
requested, or by any other means of mail that requires a signed receipt, postage
prepaid, mailed to such party as herein provided. Nothing herein contained shall
be deemed to affect the right of any party to serve process in any manner
permitted by law or to commence legal proceedings or otherwise proceed against
any other party in any other jurisdiction.
4. Notices.
Any notice or other communication required or permitted
hereunder shall be in writing and shall be delivered personally, sent by
facsimile transmission or sent by certified, registered or express mail, postage
prepaid. Any such notice shall be deemed given when so delivered personally or
sent by facsimile transmission or, if mailed, five days after the date of
deposit in the United States mails, as follows:
i) if to the Indemnitee, to:
Sleepy's, Inc.
175 Central Avenue South
Bethpage, New York 11714
Attention: President
Telephone: (516) 844-8800
Facsimile: (516) 844-8896
<PAGE>
<PAGE>
6
with a copy to:
Parker Chapin Flattau & Klimpl, LLP
1211 Avenue of the Americas
New York, New York 10036
Attention: Gary J. Simon, Esq.
Telephone: (212) 704-6000
Facsimile: (212) 704-6288
ii) if to the Indemnitor, to:
Mr. Harry Acker
c/o Sleepy's, Inc.
175 Central Avenue South
Bethpage, New York
Telephone: (516) 844-8800
Facsimile: (516) 844-8845
With a copy to:
Any party may by notice given in accordance with this Section to the other
parties designate another address or person for receipt of notices hereunder.
Copies of any such notices shall also be given to the
Representative as follows:
Gerard Klauer Mattison & Co., LLC
529 Fifth Avenue
New York, New York 10017
Attention: Dominic A. Petito
Telephone: (212) 885-4100
Facsimile: (212) 338-8991
With a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
<PAGE>
<PAGE>
7
Attention: Mitchell S. Fishman, Esq.
Telephone: (212) 373-3000
Facsimile: (212) 757-3990
5. Entire Agreement.
This Agreement and the Escrow Agreement contain the entire
agreement among the parties with respect to the matters described herein and
supersede all prior agreements, written or oral, with respect thereto.
6. Waivers and Amendments.
This Agreement may be amended, superseded, canceled, renewed
or extended, and the terms hereof may be waived, only by a written instrument
signed by the Indemnitor and the Indemnitee or, in the case of a waiver, by the
party waiving compliance. No delay on the part of any party in exercising any
right, power or privilege hereunder shall operate as a waiver thereof, nor shall
any waiver on the part of any party of any such right, power or privilege, nor
any single or partial exercise of any such right, power or privilege, preclude
any further exercise thereof or the exercise of any other such right, power or
privilege.
7. Governing Law.
THIS AGREEMENT SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE
PERFORMED ENTIRELY WITHIN SUCH STATE.
<PAGE>
<PAGE>
8
8. Binding Effect; Assignment.
This Agreement shall be binding upon and inure to the benefit
of the parties and their respective successors and permitted assigns. This
Agreement is not assignable except by operation of law, and any purported
assignment in violation hereof shall be null and void.
9. Counterparts.
This Agreement may be executed by the parties hereto in
separate counterparts, each of which when so executed and delivered shall be an
original, but all such counterparts shall together constitute one and the same
instrument. Each counterpart may consist of a number of copies hereof each
signed by less than all, but together signed by all of the parties hereto.
10. No Admission.
It is understood and agreed that this Indemnification
Agreement is being executed and delivered because of the existence of the
Actions and the allegations made therein, and that this Agreement does not
constitute an admission by
<PAGE>
<PAGE>
9
any party hereto that the Actions, or any part thereof, are valid, or that any
liability exists on the part of any party hereto to the Plaintiff or any other
party.
IN WITNESS WHEREOF, the parties hereto have caused this
agreement to be executed as the day and year first above written.
INDEMNITOR:
____________________________________
Harry Acker
INDEMNITEE:
SLEEPY'S, INC.
By: _______________________________
Name:
Title:
<PAGE>
<PAGE>
ESCROW AGREEMENT
ESCROW AGREEMENT (this "Agreement"), dated as of [_______],*/
1996 among SLEEPY'S, INC., a New York corporation (the "Company"), HARRY ACKER,
an individual residing at 61 Bay Colony Drive, Fort Lauderdale, Florida
("Acker") and [________], as escrow agent (the "Escrow Agent").
R E C I T A L S
WHEREAS, the Company proposes to sell in a public offering
(the "Public Offering") up to 1,581,250 shares of its common stock, par value
$0.01 per share (the "Common Stock"), and has engaged Gerard Klauer Mattison &
Co., LLC (the "Representative") as underwriter to effect the Public Offering
pursuant to an Underwriting Agreement dated as of [_____], 1996, among the
Company, Acker and the Representative (the "Underwriting Agreement");
WHEREAS, prior to the closing of the Public Offering, the
Company will be wholly-owned by Acker;
WHEREAS, prior to the date hereof, Sid Patterson filed
lawsuits against the Company, Acker and another individual, purportedly in the
right of the Company, in the Supreme Court of the State of New York, New York
County, styled Sid Patterson v. M.J.R. Bedding Co., Inc., Bedding Discount
Centers, Inc., Harold
- --------
*/ The date of the Underwriting Agreement.
<PAGE>
<PAGE>
2
Acker and Jack Brown, Index No. 576/89 (the "M.J.R. Action") and Sid Patterson
v. Hapat Bedding Corp., Bedding Discount Centers, Inc., Harold Acker and Jack
Brown, Index No. 8513/88 (the "Hapat Action" and together with the M.J.R.
Action, the "Actions");
WHEREAS, the Underwriting Agreement sets forth as a condition
precedent to the Representative's obligations thereunder that the Company and
Acker shall have entered into an Indemnification Agreement (the "Indemnification
Agreement") in which Acker agrees to indemnify the Company against certain
obligations arising from the Actions, and any other action, including appeals
arising from the Actions, that may hereafter be brought against the Company or
Acker in respect of any of the matters relating to such Actions (the Actions,
together with such actions, the "Claims"), on the terms therein set forth; and
WHEREAS, the Underwriting Agreement also sets forth as a
condition precedent to the Representative's obligations thereunder that,
concurrently with the execution of the Indemnification Agreement and to secure
the obligations of Acker set forth therein, the Company and Acker shall have
entered into this Agreement.
NOW, THEREFORE, in consideration of the foregoing and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereby agree as follows (certain terms used in this
Agreement and not otherwise defined are used with the meanings ascribed to them
in Section 11.1):
<PAGE>
<PAGE>
3
1. Establishment of Escrow Fund.
Simultaneously with the closing of the Public Offering, Acker
agrees to deposit and shall deposit with the Escrow Agent, (i) by wire transfer
of immediately available funds, cash in the amount of One Million Dollars
($1,000,000.00) and (ii) either a certificate or certificates representing
___________ shares of Common Stock, which Acker and the Company agree have a
value of not less than Five Hundred Thousand Dollars ($500,000.00), based on a
value per share equal to the initial public offering price of such shares, or,
in the discretion of Acker, additional cash in the amount of Five Hundred
Thousand Dollars ($500,000.00) ((i) and (ii), collectively, the "Escrow
Deposit"), in order to secure and fund certain of Acker's obligations to the
Company as set forth in the Indemnification Agreement. Such Escrow Deposit, as
from time to time invested and reinvested as herein provided, less (a) any
distributions pursuant to Article 3, (b) any payments pursuant to Section 4.4
and (c) any distributions pursuant to Section 5.4, is sometimes herein called
the "Escrow Fund."
The Escrow Agent will hold, invest and dispose of the Escrow
Fund, and any interest or income earned which the Escrow Fund has received with
respect thereto, in accordance with the terms and conditions hereof.
2. Investment of the Escrow Fund.
2.1 Investment. The Escrow Agent, as directed in writing
by the Company, shall invest any or all of the Escrow Fund, and any
undistributed
<PAGE>
<PAGE>
4
interest or income earned which the Escrow Fund has received with respect
thereto, in its sole discretion, in any of the following:
(a) overnight money market sweep vehicles or mutual
funds of the Escrow Agent or others;
(b) marketable obligations issued or unconditionally
guaranteed by the United States of America or any agency or instrumentality
thereof, in each case maturing within one year from the acquisition thereof;
(c) certificates of deposit (including certificates
of deposit issued by the Escrow Agent, money market certificates and similar
instruments) of or accounts with national banks or corporations endowed with
trust powers having, in any case, capital and surplus in excess of $100,000,000
at the time of investment, in each case maturing within one year from the
acquisition thereof;
(d) commercial paper at the time of investment rated
A-1 by Standard & Poor's Ratings Group (a division of McGraw-Hill Inc.) or
Prime-1 by Moody's Investors Service, Inc.; and
(e) marketable direct obligations issued by any
state of the United States or any political subdivision or public
instrumentality thereof, in each case maturing one year from the acquisition
thereof, and having as of any date of determination one of the two highest
published ratings obtainable from either Standard & Poor's Ratings Group or
Moody's Investors Service, Inc.
<PAGE>
<PAGE>
5
The Escrow Agent shall have no liability for any loss
sustained by the Escrow Fund by reason of any investment made in accordance with
this Section 2.1 or for any failure to invest all or any part of the Escrow
Fund.
2.2. Quarterly Statements. As soon as practicable
following each March 31, June 30, September 30 and December 31 during the term
of this Agreement, the Escrow Agent shall deliver to Acker and the Company a
statement (a "Quarterly Statement") setting forth (a) the Value of the Escrow
Fund as at such date; (b) the amount of income or interest earned or accrued
with respect thereto during the period covered by such Quarterly Statement; (c)
in the case of any Quarterly Statement coinciding with the end of a Semi-Annual
Period, the amount of income or interest distributable to Acker pursuant to
Article 3 or Section 5.1 with respect to such Semi-Annual Period; and (d) the
amounts owed or paid by Acker to the Escrow Agent pursuant to Article 10 with
respect to the period covered by such Quarterly Statement.
3. Distribution of Income.
The amount of the undistributed interest or income earned
which the Escrow Fund has received with respect to the Escrow Fund that, when
aggregated with the Escrow Fund, exceeds the Escrow Deposit, less any amount
owed to the Escrow Agent pursuant to Article 10, shall be accumulated and paid
over by the Escrow Agent to Acker as soon as practicable following the last day
of each SemiAnnual Period.
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6
4. Procedures with Respect to Escrow Claims.
4.1. Escrow Claims. If the Company has an Escrow Claim,
the Company shall give written notice of such claim (an "Escrow Claims Notice")
to the Escrow Agent and to Acker. The Escrow Claims Notice delivered to Acker
shall describe the Escrow Claim in reasonable detail, and shall indicate the
amount (estimated, if necessary and to the extent feasible) of such Escrow
Claim.
4.2. Response to Escrow Claims. Within 10 days after
receipt of any Escrow Claims Notice asserting an Escrow Claim, Acker shall with
respect to such Escrow Claim, by notice to the Company and the Escrow Agent, (a)
concede liability in whole or in part; or (b) deny liability in whole or in
part. The failure of Acker to give such notice within the specified period shall
be deemed a concession of liability in whole by Acker with respect to such
Escrow Claim, and the failure in such notice to deny liability with respect to
the whole of an Escrow Claim shall be deemed a concession of liability by Acker
with respect to the portion of such Escrow Claim as to which liability was not
denied.
4.3. Arbitration of Escrow Claims. If Acker has denied
liability in whole or in part pursuant to Section 4.2 with respect to any Escrow
Claim, Acker and the Company shall attempt to resolve the dispute with respect
to such Escrow Claim as promptly as possible. If Acker and the Company have
failed to resolve such dispute within 30 days after Acker has denied liability,
the issue of liability shall be submitted to arbitration, in accordance with
Article 7.
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7
4.4. Payment of Escrow Claims.
(a) Any amount paid from the Escrow Fund pursuant to
this Article 4 shall, for purposes of the Indemnification Agreement, be
attributed to Acker as constituting satisfaction to that extent of his
obligations under the Indemnification Agreement.
(b) For all Escrow Claims, the Escrow Agent shall
make payments to the Company from the Escrow Fund (i) promptly following
concession of liability by Acker in whole or in part, to the extent of the
liability conceded; (ii) promptly following receipt by the Escrow Agent of joint
written instructions from the Company and Acker directing that such a payment be
made to the Company; or (iii) as directed pursuant to an Arbitration Order of
the arbitrator in accordance with Article 7.
4.5. Indemnification Payments in Excess of the Escrow
Fund. If at any time during the period that this Agreement is in effect the
amount of any payment required to be made by the Escrow Agent to the Company
pursuant to Section 4.4 exceeds the Value of the Escrow Fund (and all
undistributed interest or income earned which the Escrow Fund has received with
respect thereto), the Escrow Agent shall pay to the Company the entire Escrow
Fund (and all interest or income earned which the Escrow Fund has received with
respect thereto), and Acker shall remain liable to the Company for any portion
of such required payment that exceeds the amounts so paid to the Company.
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8
4.6. Method of Payment of Escrow Claims.
The foregoing payments shall be made to the Company by bank check to the address
set forth in this Agreement or by wire transfer of immediately available funds
to an account designated by the Company.
5. Distributions to Acker from the Escrow Fund.
5.1. Distribution of Escrow Fund to Acker. Subject to the
provisions of this Article 5, the Escrow Agent shall distribute to Acker any
undistributed interest or income earned with respect to the Escrow Fund as soon
as practicable following the last date of each Semi-Annual Period.
5.2. Distribution Notice. Not less than thirty days prior
to any pending distribution pursuant to Section 5.1, the Escrow Agent shall give
the Company notice (the "Distribution Notice") of any such pending distribution.
Within ten days after receipt of the Distribution Notice, the Company shall, by
notice to the Escrow Agent with a copy to Acker (a "Distribution Reply"), state
(a) its agreement that the amount specified in the Distribution Notice (or any
lesser portion thereof) is properly distributable to Acker; or (b) that it
disputes that the amount is properly distributable to Acker and the reasons
therefor. Failure by the Company to give a Distribution Reply within the
specified period shall be deemed an agreement that the amount specified in the
Distribution Notice is properly distributable to Acker in accordance with the
provisions of Section 5.1.
5.3. Arbitration of Distribution. If the Company gives
notice pursuant to Section 5.2 of any dispute with respect to a pending
distribution, the
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9
parties shall attempt to resolve such dispute as promptly as possible. If the
Company and Acker have failed to resolve any such dispute within 30 days after
the Company has mailed the Distribution Reply, the issue of the distributable
amount shall be submitted to arbitration, in accordance with Article 7.
5.4. Distribution Procedure. The Escrow Agent shall make
distributions of the Escrow Fund (and all undistributed interest or income
earned which the Escrow Fund has received with respect thereto) pursuant to this
Article 5 to Acker (a) promptly following agreement by the Company pursuant to
Section 5.2 to such distribution; (b) promptly following receipt by the Escrow
Agent of joint written instructions from the Company and Acker directing that
such a distribution be made to Acker; or (c) as directed pursuant to an
Arbitration Order of the arbitrator in accordance with Article 7.
5.5. Method of Distribution. The foregoing distributions
shall be made to Acker by bank check to the address set forth in this Agreement
or by wire transfer of immediately available funds to an account designated by
Acker in a notice to the Escrow Agent.
6. Termination of this Agreement.
This Agreement shall terminate (i) upon the termination of all
Claims, and the satisfaction by Acker of all his obligations to the Company
arising from this Agreement and the Indemnification Agreement, or (ii) payment
pursuant to Article 4 of all of the Escrow Fund (and all undistributed interest
or income earned which the
<PAGE>
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10
Escrow Fund has received with respect thereto) and any other sums held by the
Escrow Agent under this Agreement.
7. Arbitration.
7.1. Arbitration Procedures. Issues submitted to
arbitration pursuant to Section 4.3 or 5.3 shall be settled by arbitration in
accordance with the Expedited Procedures of the Commercial Arbitration Rules of
the American Arbitration Association (the "AAA Rules") by a single arbitrator
upon whom the Company and Acker agree. If the Company and Acker are unable to
agree upon an arbitrator, one arbitrator shall be selected in accordance with
the AAA Rules. All proceedings in any such arbitration shall be conducted in New
York, New York. Any judgment upon the award rendered by such arbitrator may be
entered in any court of competent jurisdiction. Upon a final determination by
the arbitrator with respect to the matters before it, the arbitrator shall
notify the Escrow Agent, the Company and Acker thereof (such notice, the
"Arbitration Order"). Jurisdiction of such arbitrator shall be exclusive as to
disputes relating to the Escrow Agreement between the Company and Acker, and the
Company and Acker agree that this agreement to arbitrate shall be specifically
enforceable under the law of New York. Neither the Company nor any Acker shall
have the right to appeal the Arbitration Order or otherwise to submit a dispute
relating to the Escrow Agreement to a court of law.
7.2. Arbitration Fees and Expenses. With respect to
matters submitted to arbitration, each of the Company and Acker shall bear its
own respective
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11
costs, fees and expenses (including reasonable fees, expenses and disbursements
of attorneys) in connection with such arbitration.
8. Duties of Escrow Agent.
8.1. Limited Duties and Obligations.
(a) The duties, responsibilities and obligations of
the Escrow Agent shall be limited to those expressly set forth herein and no
duties, responsibilities or obligations shall be inferred or implied. The Escrow
Agent shall not be subject to, nor required to comply with, any other agreement
between the Company and Acker or to which any either the Company or Acker is a
party, even though reference thereto may be made herein, or to comply with any
direction or instruction (other than those contained herein or delivered in
accordance with this Agreement) from either Acker or the Company or any entity
acting on its behalf. The Escrow Agent shall not be required to, and shall not,
expend or risk any of its own funds or otherwise incur any financial liability
in the performance of any of its duties hereunder.
(b) This Agreement is for the exclusive benefit of
the parties hereto and their respective successors hereunder, and shall not be
deemed to give, either express or implied, any legal or equitable right, remedy,
or claim to any other entity or person whatsoever.
(c) If at any time the Escrow Agent is served with
any judicial or administrative order, judgment, decree, writ or other form of
judicial or administrative process which in any way affects the Escrow Fund
(including but
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12
not limited to orders of attachment or garnishment or other forms of levies or
injunctions or stays relating to the transfer of the Escrow Fund), the Escrow
Agent is authorized to comply therewith in any manner as it or its legal counsel
of its own choosing deems appropriate; and if the Escrow Agent complies with any
such judicial or administrative order, judgment, decree, writ or other form of
judicial or administrative process, the Escrow Agent shall not be liable to any
of the parties hereto or to any other person or entity even though such order,
judgment, decree, writ or process may be subsequently modified or vacated or
otherwise determined to have been without legal force or effect.
(d) The Escrow Agent shall not be liable for any
action taken or omitted or for any loss or injury resulting from its actions or
its performance or lack of performance of its duties hereunder in the absence of
gross negligence or willful misconduct on its part. In no event shall the Escrow
Agent be liable (i) for acting in accordance with or relying upon any
instruction, notice, demand, certificate or document from the parties or any
entity acting on behalf of the the Company and Acker, (ii) for any
consequential, punitive or special damages, (iii) for the acts or omissions of
its nominees, correspondents, designees, subagents or subcustodians, or (iv) for
an amount in excess of the value of the Escrow Deposit, valued as of the date of
deposit. The Escrow Agent may consult with legal counsel as to any matter
relating to this Agreement, and the Escrow Agent shall not incur any liability
in acting in good faith in accordance with any advice from such counsel. The
Escrow Agent shall not incur any liability for not performing any act or
fulfilling any
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13
duty, obligation or responsibility hereunder by reason of any occurrence beyond
the control of the Escrow Agent (including but not limited to any act or
provision of any present or future law or regulation or government authority,
any act of God or war, or the unavailability of the Federal Reserve Bank wire or
telex or other wire or communication facility).
8.2. Indemnification. The Company, on the one hand, and
Acker, on the other hand, shall indemnify the Escrow Agent and hold it harmless
against any loss, liability or expense incurred without negligence or bad faith
on its part, arising out of or in connection with this Agreement, including the
costs and expenses incurred in defending any such claim of liability.
9. Resignation; Successor Escrow Agent.
9.1. Resignation. The Escrow Agent may resign at any time
by giving 30 days' notice of such resignation to the Company and Acker.
Thereafter, the Escrow Agent shall have no further obligation hereunder except
to hold the Escrow Fund (and all undistributed interest or income earned which
the Escrow Fund has received with respect thereto) as depositary. In such event
the Escrow Agent shall not take any action until the Company and Acker have
designated a banking corporation, trust company or any other mutually acceptable
person as successor Escrow Agent. Upon receipt of joint written instructions
from the Company and Acker expressly indicating that a successor Escrow Agent
has been appointed, the Escrow Agent shall promptly deliver the Escrow Fund (and
all undistributed interest
<PAGE>
<PAGE>
14
or income earned which the Escrow Fund has received with respect thereto) to
such successor Escrow Agent and thereafter shall have no further obligations
hereunder.
9.2. Termination of Escrow Agent. The Company and Acker
together may terminate the appointment of the Escrow Agent hereunder upon notice
specifying the date upon which such termination shall take effect (the
"Termination Notice"). In the event of such termination, the Company and Acker
shall within 30 days of the Termination Notice jointly appoint a successor
Escrow Agent and upon receipt of joint written instructions from the Company and
Acker expressly indicating that a successor Escrow Agent has been appointed, the
Escrow Agent shall turn over to such successor Escrow Agent all funds in the
Escrow Fund and any other amounts held by it pursuant to this Agreement. Upon
receipt of the funds and other amounts, the successor Escrow Agent shall
thereupon be bound by all of the provisions hereof.
10. Fees and Expenses.
Acker shall pay the compensation of the Escrow Agent for the
Escrow Agent's services hereunder and all expenses, disbursements and advances
(including reasonable attorneys' fees and disbursements) incurred in carrying
out the Escrow Agent's duties hereunder. To the extent that such fees or
expenses are unpaid, the Escrow Agent shall be entitled to deduct such amounts
from any portion of the Escrow Fund to be distributed to Acker in accordance
with the terms of this Agreement.
<PAGE>
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15
11. Miscellaneous.
11.1. Certain Definitions.
(a) As used in this Agreement, the following terms
have the following meanings unless the context otherwise requires:
"Escrow Claim" means any claim by the Company for Losses that
are subject to indemnification under the Indemnification Agreement.
"Loss" has the meaning set forth in Section 1 of the
Indemnification Agreement.
"Semi-Annual Period" means each semi-annual period ended on
December 31 and June 30.
"Value" with respect to the Escrow Fund or any asset thereof
as at any date, means the aggregate face amount thereof determined by the Escrow
Agent, whose determination with respect thereto shall be final.
(b) The following capitalized terms are defined in
the following Sections of this Agreement:
Term Section
- ---- -------
AAA Rules 7.1
Acker Preamble
Actions Recitals
Agreement Preamble
Arbitration Order 7.1
Claims Recitals
Common Stock Recitals
Company Preamble
<PAGE>
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16
Term Section
- ---- -------
Distribution Notice 5.2
Distribution Reply 5.2
Escrow Agent Preamble
Escrow Claims Notice 4.1
Escrow Deposit 1
Escrow Fund 1
Indemnification Agreement Recitals
Quarterly Statement 2.2
Public Offering Recitals
Representative Recitals
Termination Notice 9.2
Underwriting Agreement Recitals
11.2. Notices. Any notice or other communication required
or permitted hereunder shall be in writing and shall be delivered personally,
sent by facsimile transmission or sent by certified, registered or express mail,
postage prepaid. Any such notice shall be deemed given when so delivered
personally, sent by facsimile transmission or, if mailed, two days after the
date of deposit in the United States mails, as follows:
(a) if to the Company, to:
Sleepy's, Inc.
175 Central Avenue South
Bethpage, New York 11714
Attention: President
Telephone: (516) 844-8800
Facsimile: (516) 844-8896
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17
with a copy to:
Parker Chapin Flattau & Klimpl, LLP
1211 Avenue of the Americas
New York, New York 10036
Attention: Gary J. Simon, Esq.
Telephone: (212) 704-6000
Facsimile: (212) 704-6288
(b) if to Acker, to:
Mr. Harry Acker
c/o Sleepy's, Inc.
175 Central Avenue South
Bethpage, New York
Telephone: (516) 844-8800
Facsimile: (516) 844-8845
With a copy to:
(c) if to the Escrow Agent, to:
with a copy in any such case to the Representative, to:
Gerard Klauer Mattison & Co., LLC
529 Fifth Avenue
New York, New York
Attention: Dominic A. Petito
Telephone: (212) 885-4100
Facsimile: (212) 338-8991
<PAGE>
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18
With a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Attention: Mitchell S. Fishman, Esq.
Telephone: (212) 373-3000
Facsimile: (212) 757-3990
11.3. Entire Agreement. This Agreement is entered into
and delivered pursuant to the Indemnification Agreement and as such contains the
entire agreement among the parties with respect to the subject matter hereof and
supersedes all prior agreements, written or oral, with respect thereto.
11.4. Waivers and Amendments. This Agreement may be
amended, extended, superseded, canceled, renewed or extended, and the terms
hereof may be waived, only by a written instrument signed by the parties, or, in
the case of a waiver, by the party waiving compliance. No delay on the part of
any party in exercising any right, power or privilege hereunder shall operate as
a waiver thereof, nor shall any waiver on the part of any party of any such
right, power or privilege, nor any single or partial exercise of any such right,
power or privilege preclude any other or further exercise thereof or the
exercise of any other such right, power or privilege.
11.5. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS
<PAGE>
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19
OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED
ENTIRELY WITHIN SUCH STATE.
11.6. Assignment. This Agreement shall be binding upon
and inure to the benefit of the parties and their respective successors and
permitted assigns. This Agreement is not assignable except by operation of law,
and any purported assignment in violation hereof shall be null and void.
11.7. Further Assurances. Each of the parties shall
execute such documents and other papers and take such further actions as may be
reasonably required or desirable to carry out the provisions hereof and the
transactions contemplated hereby.
11.8. Counterparts. This Agreement may be executed by the
parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original but all such counterparts together shall
constitute one and the same instrument. Each counterpart may consist of a number
of copies hereof each signed by less than all, but together signed by all of the
parties hereto.
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20
11.9. Headings. The headings in this Agreement are for
reference only and shall not affect the interpretation of this Agreement. All
references in this Agreement to Sections shall be deemed references to such
parts of this Agreement, unless expressly specified otherwise herein.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
ESCROW AGENT:
[_____]
By:___________________________
Name:
Title:
______________________________
Harry Acker
COMPANY:
SLEEPY'S, INC.
By:___________________________
Name:
Title:
<PAGE>
<PAGE>
SHAREHOLDER DISTRIBUTION AND ESCROW AGREEMENT
SHAREHOLDER DISTRIBUTION AND ESCROW AGREEMENT (this
"Agreement"), dated as of [_______],1/ 1996 among SLEEPY'S, INC., a New York
corporation (the "Company"), HARRY ACKER, an individual residing at 61 Bay
Colony Drive, Fort Lauderdale, Florida ("Acker") and [________], as escrow agent
(the "Escrow Agent").
R E C I T A L S
WHEREAS, the Company proposes to sell in a public offering
(the "Public Offering") up to 1,581,250 shares of its common stock, par value
$0.01 per share, pursuant to a registration statement (File No. 333-05543) filed
with the Securities and Exchange Commission (the "Registration Statement");
WHEREAS, concurrently herewith, the Company, Acker and Gerard
Klauer Mattison & Co., LLC (the "Representative") are entering into an
Underwriting Agreement dated the date hereof (the "Underwriting Agreement") to
effect the Public Offering, and Acker and the Company propose to effect the
transactions (the "Reorganization Transactions") described in the Registration
Statement under the caption "Reorganization of the Company and Change in Tax
Status";
- --------
1/ The date of the Underwriting Agreement.
<PAGE>
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2
WHEREAS, prior to the date hereof (the "Effective Date"), the
Company has been taxed as an S corporation under the Internal Revenue Code of
1986, as amended, but the S corporation election of the Company will terminate
upon consummation of the Reorganization Transactions;
WHEREAS, on the Closing Date (as defined in the Underwriting
Agreement), Acker will be entitled to receive a distribution of the Company's
undistributed S corporation earnings through the date hereof net of any advances
against such earnings previously paid to Acker and net of any amounts owed by
Acker to the Company (the "S Corporation Distribution"); and
WHEREAS, the Company and Acker agree that the Company will
deposit a portion of the S Corporation Distribution to Acker into an escrow
account to be held in accordance with the terms of this Agreement.
NOW, THEREFORE, in consideration of the foregoing and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereby agree as follows:
1. Distribution to Acker; Establishment of Escrow Fund.
1.1 Company's Obligation to Acker. The Company agrees to
distribute to Acker the S Corporation Distribution, pursuant to Sections 1.2,
1.3 and 1.4.
1.2 Initial Distribution. On the Closing Date, the
Company agrees to pay and shall pay to Acker the excess of (a) the Unaudited Net
Retained
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3
Earnings Amount (as hereafter defined) over (b) the Escrow Deposit, as provided
for in Section 1.3. As used herein "Unaudited Net Retained Earnings Amount"
means the S corporation earnings of the Company net of any advances against such
earnings previously paid to Acker and net of any amounts owed by Acker to the
Company, in each case as reflected in the [consolidated balance sheets] of the
Company and its subsidiaries as of [June 30, 1996].2/
1.3 Deposit; Establishment of Escrow Account. On the
Closing Date, the Company agrees to deposit and shall deposit with the Escrow
Agent, by wire transfer of immediately available funds, cash in the amount of
[ten percent]3/ of the Unaudited Net Retained Earnings Amount (the "Escrow
Deposit"). Such Escrow Deposit, as from time to time invested and reinvested as
herein provided, is sometimes called the "Escrow Fund." The Escrow Agent will
hold, invest and dispose of the Escrow Fund, and any interest or income earned
which the Escrow Fund has received with respect thereto, in accordance with the
terms and conditions hereof.
1.4 Final Distribution. As soon as practicable following
the date of the preparation and delivery by the Company of the Audited Balance
Sheet in accordance with Section 3.1, the Company agrees to pay and shall pay to
Acker the amount, if any, by which the Audited Net Retained Earnings Amount
exceeds the
- --------
2/ The date should reflect the last date prior to the Effective Date for
which the Company is reasonably able to prepare consolidated balance
sheets.
3/ Appropriate percentage of the Unaudited Net Retained Earnings Amount to
be determined.
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4
Unaudited Net Retained Earnings Amount. As used herein, "Audited Net Retained
Earnings Amount" means the S corporation earnings of the Company net of any
advances against such earnings previously paid to Acker and net of any amounts
owed by Acker to the Company, in each case as reflected in the Audited Balance
Sheet delivered in accordance with Section 3.1.
2. Investment of the Escrow Fund. The Escrow Agent, as
directed in writing by the Company, shall invest any or all of the Escrow Fund,
and any undistributed interest or income earned which the Escrow Fund has
received with respect thereto, in its sole discretion, in any of the following:
(a) overnight money market sweep vehicles or mutual funds
of the Escrow Agent or others;
(b) marketable obligations issued or unconditionally
guaranteed by the United States of America or any agency or instrumentality
thereof, in each case maturing within one year from the acquisition thereof;
(c) certificates of deposit (including certificates of
deposit issued by the Escrow Agent, money market certificates and similar
instruments) of or accounts with national banks or corporations endowed with
trust powers having, in any case, capital and surplus in excess of $100,000,000
at the time of investment, in each case maturing within one year from the
acquisition thereof;
(d) commercial paper at the time of investment rated A-1
by Standard & Poor's Ratings Group (a division of McGraw-Hill Inc.) or Prime-1
by Moody's Investors Service, Inc.; and
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5
(e) marketable direct obligations issued by any state of
the United States or any political subdivision or public instrumentality
thereof, in each case maturing one year from the acquisition thereof, and having
as of any date of determination one of the two highest published ratings
obtainable from either Standard & Poor's Ratings Group or Moody's Investors
Service, Inc.
The Escrow Agent shall have no liability for any loss
sustained by the Escrow Fund by reason of any investment made in accordance with
this Section 2.1 or for any failure to invest all or any part of the Escrow
Fund.
3. Distribution of the Escrow Fund.
3.1 Delivery of Audited Balance Sheet. Not later than 60
days after the date hereof, the Company shall prepare, and shall cause BDO
Seidman, LLP or another reputable firm of independent public accountants
acceptable to the Company, Acker and the Representative (the "Accountants") to
examine and report on, a consolidated balance sheet of the Company which shall
fairly present the financial condition of the Company and its Subsidiaries as of
the Effective Date after giving effect to the Reorganization Transactions and
which shall be prepared in conformity with generally accepted accounting
principles and on a basis consistent with the audited balance sheet of the
Company as of December 31, 1995 included in the Registration Statement (the
"Audited Balance Sheet"). Without limiting the generality of the foregoing, the
Audited Balance Sheet shall be prepared so as to clearly and accurately disclose
the accumulated and undistributed S corporation earnings of the Company as of
the Effective Date, all prior advances against such
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6
earnings previously paid to Acker or any other shareholder prior to such date
and all amounts owed to the Company by Acker or any other shareholder as of such
date. As soon as practicable following preparation of the Audited Balance Sheet,
the Company shall deliver copies of such Audited Balance Sheet and of the report
of the Accountants thereon to Acker, the Representative and the Escrow Agent.
3.2 Distribution and Payment in the Case of
Overstatement.
(a) If the Audited Balance Sheet discloses that the
Unaudited Net Retained Earnings Amount exceeds the Audited Net Retained Earnings
Amount (an "Overstatement"), then the Company shall furnish to Acker, the
Representative and the Escrow Agent a certificate stating that it is being
delivered pursuant to this Section 3.2 and the amount of such Overstatement.
Upon receipt of such certificate, the Escrow Agent shall pay (i) to the Company,
an amount equal to the amount of the Overstatement, together with an amount
equal to the interest or income earned which the Escrow Fund has received with
respect to such amount, and (ii) to Acker, the balance, if any, remaining in the
Escrow Account.
(b) If the amount of the Overstatement, together
with undistributed interest or income which the Escrow Fund has received since
the Effective Date, exceeds the amount of the Escrow Fund (a "Shortfall"), the
Escrow Agent shall forthwith give notice of such fact and of the amount of the
Shortfall to the Company, Acker and the Representative, and shall simultaneously
pay to the Company all amounts in the Escrow Account, and, as soon as
practicable after receipt
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7
of such notice, Acker shall pay to the Company an amount equal to the amount of
the Shortfall.
3.3 Distribution and Payment in the Case of
Understatement. If the Audited Balance Sheet discloses that the Audited Net
Retained Earnings Amount exceeds the Unaudited Net Retained Earnings Amount (an
"Understatement"), then the Company shall furnish to Acker, the Representative
and the Escrow Agent a certificate stating that it is being delivered pursuant
to this Section 3.3. and the amount of such Understatement. As soon as
practicable after receipt of such certificate, the Escrow Agent shall pay to
Acker all amounts then held by it in the Escrow Account, and the Company shall
pay to Acker an amount equal to the Understatement in accordance with Section
1.4.
3.4 Termination Upon Payment. Upon the final payment
pursuant to this Section 3 of all amounts held in the Escrow Account, the duties
of the Escrow Agent hereunder shall terminate.
4. Duties of Escrow Agent.
4.1. Limited Duties and Obligations.
(a) The duties, responsibilities and obligations of
the Escrow Agent shall be limited to those expressly set forth herein and no
duties, responsibilities or obligations shall be inferred or implied. The Escrow
Agent shall not be subject to, nor required to comply with, any other agreement
between the Company and Acker or to which any either the Company or Acker is a
party, even though reference thereto may be made herein, or to comply with any
direction or
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8
instruction (other than those contained herein or delivered in accordance with
this Agreement) from either Acker or the Company or any entity acting on its
behalf. The Escrow Agent shall not be required to, and shall not, expend or risk
any of its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder.
(b) This Agreement is for the exclusive benefit of
the parties hereto and their respective successors hereunder, and shall not be
deemed to give, either express or implied, any legal or equitable right, remedy,
or claim to any other entity or person whatsoever.
(c) If at any time the Escrow Agent is served with
any judicial or administrative order, judgment, decree, writ or other form of
judicial or administrative process which in any way affects the Escrow Fund
(including but not limited to orders of attachment or garnishment or other forms
of levies or injunctions or stays relating to the transfer of the Escrow Fund),
the Escrow Agent is authorized to comply therewith in any manner as it or its
legal counsel of its own choosing deems appropriate; and if the Escrow Agent
complies with any such judicial or administrative order, judgment, decree, writ
or other form of judicial or administrative process, the Escrow Agent shall not
be liable to any of the parties hereto or to any other person or entity even
though such order, judgment, decree, writ or process may be subsequently
modified or vacated or otherwise determined to have been without legal force or
effect.
<PAGE>
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9
(d) The Escrow Agent shall not be liable for any
action taken or omitted or for any loss or injury resulting from its actions or
its performance or lack of performance of its duties hereunder in the absence of
gross negligence or willful misconduct on its part. In no event shall the Escrow
Agent be liable (i) for acting in accordance with or relying upon any
instruction, notice, demand, certificate or document from the parties or any
entity acting on behalf of the the Company and Acker, (ii) for any
consequential, punitive or special damages, (iii) for the acts or omissions of
its nominees, correspondents, designees, subagents or subcustodians, or (iv) for
an amount in excess of the value of the Escrow Deposit, valued as of the date of
deposit. The Escrow Agent may consult with legal counsel as to any matter
relating to this Agreement, and the Escrow Agent shall not incur any liability
in acting in good faith in accordance with any advice from such counsel. The
Escrow Agent shall not incur any liability for not performing any act or
fulfilling any duty, obligation or responsibility hereunder by reason of any
occurrence beyond the control of the Escrow Agent (including but not limited to
any act or provision of any present or future law or regulation or government
authority, any act of God or war, or the unavailability of the Federal Reserve
Bank wire or telex or other wire or communication facility).
4.2. Indemnification. The Company, on the one hand, and
Acker, on the other hand, shall indemnify the Escrow Agent and hold it harmless
against any loss, liability or expense incurred without gross negligence or
willful
<PAGE>
<PAGE>
10
misconduct on its part, arising out of or in connection with this Agreement,
including the costs and expenses incurred in defending any such claim of
liability.
5. Resignation; Successor Escrow Agent.
5.1. Resignation. The Escrow Agent may resign at any time
by giving 30 days' notice of such resignation to the Company and Acker.
Thereafter, the Escrow Agent shall have no further obligation hereunder except
to hold the Escrow Fund (and all undistributed interest or income earned which
the Escrow Fund has received with respect thereto) as depositary. In such event
the Escrow Agent shall not take any action until the Company and Acker have
designated a banking corporation, trust company or any other mutually acceptable
person as successor Escrow Agent. Upon receipt of joint written instructions
from the Company and Acker expressly indicating that a successor Escrow Agent
has been appointed, the Escrow Agent shall promptly deliver the Escrow Fund (and
all interest or income earned which the Escrow Fund has received with respect
thereto) to such successor Escrow Agent and thereafter shall have no further
obligations hereunder.
5.2. Termination of Escrow Agent. The Company and Acker
together may terminate the appointment of the Escrow Agent hereunder upon notice
specifying the date upon which such termination shall take effect (the
"Termination Notice"). In the event of such termination, the Company and Acker
shall within 30 days of the Termination Notice jointly appoint a successor
Escrow Agent and upon receipt of joint written instructions from the Company and
Acker expressly indicating that a successor Escrow Agent has been appointed, the
Escrow Agent shall turn over
<PAGE>
<PAGE>
11
to such successor Escrow Agent all funds in the Escrow Fund and any other
amounts held by it pursuant to this Agreement. Upon receipt of the funds and
other amounts, the successor Escrow Agent shall thereupon be bound by all of the
provisions hereof.
6. Fees and Expenses.
Acker shall pay the compensation of the Escrow Agent for the
Escrow Agent's services hereunder and all expenses, disbursements and advances
(including reasonable attorneys' fees and disbursements) incurred in carrying
out the Escrow Agent's duties hereunder. To the extent that such fees or
expenses are unpaid, the Escrow Agent shall be entitled to deduct such amounts
from any portion of the Escrow Fund to be distributed to Acker in accordance
with the terms of this Agreement.
7. Miscellaneous.
7.1. Definitions. The following capitalized terms are
defined in the following Sections of this Agreement:
Term Section
- ---- -------
Accountants 3.1
Acker Preamble
Agreement Preamble
Audited Balance Sheet 3.1
Audited Net Retained Earnings Amount 1.4
Closing Date Recitals
Company Preamble
Effective Date Recitals
Escrow Agent Preamble
Escrow Deposit 1.3
Escrow Fund 1.3
Overstatement 3.2(a)
<PAGE>
<PAGE>
12
Term Section
- ---- -------
Public Offering Recitals
Registration Statement Recitals
Reorganization Transactions Recitals
Representative Recitals
S Corporation Distribution Recitals
Shortfall 3.2(b)
Termination Notice 5.2
Understatement 3.3
Underwriting Agreement Recitals
Unaudited Net Retained Earnings Amount 1.2
7.2 Method of Payment. All payments hereunder to either
Acker or the Company shall be made by bank check delivered to the address for
such party set forth in this Agreement or by wire transfer of immediately
available funds to an account designated in writing by the party receiving the
payment.
7.3. Notices. Any notice or other communication required
or permitted hereunder shall be in writing and shall be delivered personally,
sent by facsimile transmission or sent by certified, registered or express mail,
postage prepaid. Any such notice shall be deemed given when so delivered
personally, sent by facsimile transmission or, if mailed, two days after the
date of deposit in the United States mails, as follows:
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<PAGE>
13
(a) if to the Company, to:
Sleepy's, Inc.
175 Central Avenue South
Bethpage, New York 11714
Attention: President
Telephone: (516) 844-8800
Facsimile: (516) 844-8896
with a copy to:
Parker Chapin Flattau & Klimpl, LLP
1211 Avenue of the Americas
New York, New York 10036
Attention: Gary J. Simon, Esq.
Telephone: (212) 704-6000
Facsimile: (212) 704-6288
(b) if to Acker, to:
Mr. Harry Acker
c/o Sleepy's, Inc.
175 Central Avenue South
Bethpage, New York
Telephone: (516) 844-8800
Facsimile: (516) 844-8845
With a copy to:
(c) if to the Escrow Agent, to:
<PAGE>
<PAGE>
14
with a copy in any such case to the Representative, to:
Gerard Klauer Mattison & Co., LLC
529 Fifth Avenue
New York, New York
Attention: Dominic A. Petito
Telephone: (212) 885-4100
Facsimile: (212) 338-8991
With a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Attention: Mitchell S. Fishman, Esq.
Telephone: (212) 373-3000
Facsimile: (212) 757-3990
7.4. Entire Agreement. This Agreement contains the entire
agreement among the parties with respect to the subject matter hereof and
supersedes all prior agreements, written or oral, with respect thereto.
7.5. Waivers and Amendments. This Agreement may be
amended, extended, superseded, canceled, renewed or extended, and the terms
hereof may be waived, only by a written instrument signed by the parties, or, in
the case of a waiver, by the party waiving compliance. No delay on the part of
any party in exercising any right, power or privilege hereunder shall operate as
a waiver thereof, nor shall any waiver on the part of any party of any such
right, power or privilege, nor any single or partial exercise of any such right,
power or privilege preclude any
<PAGE>
<PAGE>
15
other or further exercise thereof or the exercise of any other such right, power
or privilege.
7.6. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE.
7.7. Assignment. This Agreement shall be binding upon and
inure to the benefit of the parties and their respective successors and
permitted assigns. This Agreement is not assignable except by operation of law,
and any purported assignment in violation hereof shall be null and void.
7.8. Further Assurances. Each of the parties shall
execute such documents and other papers and take such further actions as may be
reasonably required or desirable to carry out the provisions hereof and the
transactions contemplated hereby.
7.9. Counterparts. This Agreement may be executed by the
parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original but all such counterparts together shall
constitute one and the same instrument. Each counterpart may consist of a number
of copies hereof each signed by less than all, but together signed by all of the
parties hereto.
<PAGE>
<PAGE>
16
7.10. Headings and Sections. The headings in this
Agreement are for reference only and shall not affect the interpretation of this
Agreement. All references in this Agreement to Sections shall be deemed
references to such parts of this Agreement, unless expressly specified otherwise
herein.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
ESCROW AGENT:
[_____]
By:___________________________
Name:
Title:
___________________________
Harry Acker
COMPANY:
SLEEPY'S, INC.
By:___________________________
Name:
Title:
<PAGE>
<PAGE>
Sleepy's, Inc & Affiliates
Listing of Corporations
The following is a list of corporations that are currently wholly-owned by
Harry Acker, Chairman of the Board and Chief Executive Officer of the Company,
and three trusts formed by Mr. Acker, as to each of which Mr. Acker is sole
trustee. Prior to the effectiveness of this offering, all of the outstanding
capital stock of each of these corporations will be contributed to the Company.
<TABLE>
<CAPTION>
STATE OF
NAME OF CORPORATION INCORPORATION
- ---------------------------------------------------------------------
<S> <C>
Sleepy's of Patchogue, Inc. New York
Sleepy's of West Babylon, Inc. New York
Sleepy's of Bay Shore, Inc. New York
Sleepy's of Bensonhurst, Inc. New York
Sleepy's of Broadway, Inc. New York
Sleepy's of Livingston Street Inc. New York
Sleepy's of Kings Highway, Inc. New York
Sleepy's of Selden, Inc. New York
Sleepy's of Commack, Inc. New York
Barthel Inc. New York
Sleepy's of Edison, Inc. New Jersey
Sleepy's of Hanover, Inc. New Jersey
Sleepy's of Queens Boulevard, Inc. New York
Sleepy's of 57th Street, Inc. New York
Sleepy's of Forest Avenue, Inc. New York
Sleepy's of Forest Hills, Inc. New York
Sleepy's of Farmingdale, Inc. New York
Sleepy's of Oakdale, Inc. New York
Sleepy's of Hoboken, Inc. New Jersey
Sleepy's of Hasbrouck Heights, Inc. New Jersey
Sleepy's of West Hempstead, Inc. New York
Sleepy's of Herald Square, Inc. New York
Sleepy's of Hylan Blvd., Inc. New York
Sleepy's of Oceanside, Inc. New York
Sleepy's of Manhasset, Inc. New York
Sleepy's of Rockaway Turnpike, Inc. New York
Sleepy's of Mamaroneck, Inc. New York
Sleepy's of Mt. Kisco, Inc. New York
Merrick Sleep Center, Inc. New York
Sleepy's of Huntington, Inc. New York
Sleepy's of Parkchester, Inc. New York
Sleepy's of Route 4, Inc. New Jersey
Sleepy's of Park Slope, Inc. New York
Sleepy's of Ridgewood, Inc. New York
Sleepy's of Richmond Hill, Inc. New York
Sleepy's of Riverhead, Inc. New York
Sleepy's of Rocky Point, Inc. New York
Sleepy's of Rosedale, Inc. New York
</TABLE>
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
STATE OF
NAME OF CORPORATION INCORPORATION
- --------------------------------------------------------------------
<S> <C>
1453 Center Corp. New York
Sleepy's of Sixth Avenue, Inc. New York
Sleepy's of Nanuet, Inc. New York
Sleepy's of Lynbrook, Inc. New York
Sleepy's of Third Avenue, Inc. New York
Plainedge Bedding Corporation, Inc. New York
Sleepy's of 86th Street, Inc. New York
Sleepy's of Little Falls, Inc. New Jersey
Sleepy's of Watchung, Inc. New Jersey
Sleepy's of White Plains, Inc. New York
Sleepy's of Bridgehampton, Inc. New York
Sleepy's of Route 107, Inc. New York
Sleepy's of Secaucus, Inc. New Jersey
Sleepy's of West New York, Inc. New Jersey
Sleepy's of Lawrence, Inc. New York
Sleepy's of Massapequa, Inc. New York
Sleepy's of Yonkers, Inc. New York
Sleepy's of Smithtown, Inc. New York
Sleepy's of Ozone Park, Inc. New York
K.S. Acquisition Corporation New York
Sleepy's of Rego Park, Inc. New York
Kleinsleep of Paramus, Inc. New Jersey
Kleinsleep of Southampton, Inc. New York
Kleinsleep of Broadway, Inc. New York
Kleinsleep of Westport, Inc. Connecticut
Kleinsleep of Manhasset, Inc. New York
Kleinsleep of Upper Broadway, Inc. New York
Sleepy's International, Inc. Florida
1-800-Sleepy's, Inc. New York
DAV Consulting, Inc. New York
Ackers Bedding Centers, Inc. New York
</TABLE>
<PAGE>
<PAGE>
CONSENT OF BDO SEIDMAN, LLP
Sleepy's, Inc.
Bethpage, New York
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement of our report dated March 7, 1996 (except for Note 1(a),
1(h), 3, 7, 10(c) and 11 which are dated ___________________, 1996), relating
to the consolidated financial statements of Sleepy's Inc. and subsidiaries,
which is contained in that Prospectus, and of our report dated March 7, 1996,
relating to the schedule, which is contained in Part II of the Registration
Statement.
We also consent to the reference to us under the captions 'Selected Financial
Data' and 'Experts' in the Prospectus.
/s/ BDO SEIDMAN, LLP
BDO Seidman, LLP
Mitchel Field, New York
July 15, 1996
<PAGE>
